The Wall Street slide: why New York is losing out as the world's financial center.

• Author: Baker, Gerard

Wall Street people are supposed to be go-getting, hard-charging, can-do types. Optimistic to a fault, masters of the universe aren't meant to spend a lot of time complaining about how unfair life is and how difficult it is to make a decent living these days.

But New York seems to have lost its mojo. You can't open a newspaper or turn on a financial news channel without hearing that the United States is losing its edge in global financial markets and that it's all the fault of an unfair system. The complaint is that burdensome regulations, most notably the Sarbanes-Oxley legislation passed by Congress in 2002 in the wake of the Enron and other financial scandals, has driven business away from New York, enriching other financial centers around the world such as London and Hong Kong.

The Wall Street whining has become so loud that politicians have got in on the act. At the end of last year Michael Bloomberg, the mayor of New York, and Chuck Schumer (D), the senior senator from the state, sponsored a report by McKinsey that documented New York's loss of competitiveness. In March this year Treasury Secretary Henry Paulson and Securities and Exchange Commission head Chris Cox assembled a glittering crowd of Wall Street and Washington mavens that included Warren Buffett, Robert Rubin, and Alan Greenspan for a therapy session at Georgetown University to discuss their problems. Mr. Paulson promised action to revive the competitiveness of American capital markets. Mr. Cox is working to loosen some of the offending rules.

But how serious is all this? Are U.S. financial markets really losing out to more nimble, less tightly regulated markets in Europe and Asia? And if they are, is it really the fault of Sarbanes-Oxley and other aspects of America's regulatory regime?

There is certainly solid evidence that New York is losing its status as the world's preeminent financial center. In that McKinsey report sponsored by Bloomberg and Schumer, the researchers concluded that the United States was still the world's number-one financial market, but that its lead had dropped sharply in recent years.

The report noted that while America still holds a lead, investment banking revenues in Europe were closing in on those of the United States in 2006. Further, last year the U.S. share of global initial public offerings was one-third what it had been in 2001 (symbolically, the last year before Sarbox). Europe's combined share was up by 30 percent. Asia's doubled. It...