According to this article in New York, Wall Street is bleeding badly these days. Profits are down and much of the credit goes to Dodd-Frank.  Midway through the article, one can read the following succinct description of how Wall Street made its money in times past, and then what went wrong:

To understand how radically Wall Street is changing, you have to first understand how modern Wall Street made its money. In the quaint old days, Wall Street tended to earn its profits rather boringly by loaning money, advising mergers, and supervising bond issues and IPOs. The leveraging of the American economy—and the supercharging of the financial industry—began in earnest in the early eighties. And banks have profited from a successive series of financial bubbles, each bigger and more violent than the one preceding it. “Wall Street did a really good job convincing people it was really complicated and they were the only ones who could do it and it justified paying them millions of dollars,” a former Lehman trader explained. Credit was the engine that powered the explosion in bank profits. From junk bonds in the eighties to the emerging-markets crisis in the nineties to the subprime mania of the aughts, Wall Street developed new ways to produce, package, and sell debt to willing investors. The alphabet soup of complex vehicles that defined the 2008 crash—CLO, CDO, CDS—had all been developed to sell more credit. “If you look at the past 25 years, the world economy was going through a process of leveraging,” a senior Citigroup executive said. “Debt has grown faster than economic growth. The banking industry was at the epicenter of facilitating the growth of credit creation. It drove every business.” . . . From 1986 to the middle of the last decade, Wall Street’s earnings grew from 19 percent of all U.S. corporate profits to 41 percent. And the talent followed. . . . Bank earnings and ever-rising asset values allowed them to borrow ever-larger amounts of money, which in turn juiced ever-greater profits. Banks, which had previously made their money advising corporations and underwriting securities, essentially became giant hedge funds (in 2007, Morgan Stanley held $1.05 trillion in assets supported by just $30 billion in equity).

The article concludes that Wall Street will never again see the good old days:

The implosion of the credit bubble destroyed Wall Street’s business model. Now regulations are kicking in that will sap its ability to create the next bubble. Over the past year and a half, the banks have dramatically deconstructed their proprietary-trading desks to comply with the new rules of the game. Among ­Volcker’s provisions is a rule that mandates that banks can invest just 3 percent of their core capital in hedge funds and private equity, meaning that, in addition to being banned from trading for their own accounts, they can’t take risks in outside funds either. “There’s less money to go around because the revenue business model is changing, and it has to change,” a former Lehman trader says. “You can’t print the cheap money anymore.”

The loss-numbers cited by the article are dramatic, but I’m not buying that Wall Street has so quickly been tamed and reformed. Time will tell whether the trends described in this article are long-term, given that Wall Street has long had a choke-hold on Congress, and can be expected to work vigorously to find new ways of making obscene money while returning little to nothing of value.