The New York Times discusses the decentralization of Wall Street, as top-flight talent appears to be leaving the big financial firms and either striking out on their own to create new and versatile financial service companies, or going to foreign firms. No one can be all that surprised that there are and will continue to be changes to the financial service industry, but some of these changes are worrisome, especially given that they are coming in response to higher taxes and increased government regulation of financial service companies.

As I have discussed multiple times–see here and here for just two examples–the brain drain that the American financial service industry may face thanks to increasing regulation, the pursuit of class warfare rhetoric and policies by the Obama Administration and its allies, and the tendency to blame the current economic downturn on entities like hedge funds, which had nothing to do with the financial crisis, will only serve to hurt the American financial service industry down the road. We can’t possibly expect the health of American financial service companies to be restored anytime soon when we are formulating and implementing policies that will drive talent out of the country. I don’t blame any of the people who are leaving for doing so–they are doing what they have to do in order to further their careers, make money, and provide a good quality of life for themselves and for their families. But I do blame government for working to rob us of talent in the American financial service sector that can help set things right. The Times alludes to this concern as well:

For the chiefs of Citigroup, JPMorgan Chase and other United States banks that have received government money, the implications are worrisome, even though plenty of their workers have stayed put for now.

Vikram S. Pandit of Citigroup and Jamie Dimon of JPMorgan, for example, say it will be harder to break away from taxpayer support if the workers most capable of steering their banks toward recovery walk away.

The response to these concerns is that having innovative and talented people spread their talents throughout the financial service sector–and throughout the world–is a good thing. It certainly is, if we are talking about the natural consequence of competition between firms. But when government acts as a market distorter and encourages top-flight talent to leave the American financial service sector in rebellion against excessive government intervention, then we have a problem. No one can possibly expect the American financial service sector to recover anytime soon if it doesn’t have the people with the biggest brains and the most experience to help in that recovery.

This isn’t rocket science. It would be nice if the Obama Administration and its political allies didn’t act as though they deliberately want to sabotage the American financial service sector. But thus far, they give no indication that they understand just how destructive their policies may be.

UPDATE: Welcome Felix Salmon readers from all three sites where Salmon posted his critique of this post. My reply is here.