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Wall Street: Lessons Not Learned

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While many are celebrating "The Recession is Over!" I'm not feeling great joy. Don't misunderstand me -- I want the economy to find its footing and for Americans to get back on their feet.

However, the S&P 500's nearly 45 percent surge since the March lows (NASDAQ is up almost 55 percent and the Dow has risen about 39 percent) has caused Wall Street firms to gloss over the pain of the financial crisis and return to business as usual. That's just plain depressing.

Here are just some of the the lessons not learned on Wall Street -- I encourage you to add to the list and I'll update it if enough of you help me out!
  1. Compensation is totally out of whack: It's not just the sheer obscenity of money made that is critical, it's also the way that money is divvied up within the firms. Forget about Goldman's average compensation of $700K per employee -- that's a ridiculous number. If you lop off the top 50 earners, the average drops precipitously. The concept that traders can earn so much more than back office professionals whose contribution allows the traders to stay in business is revolting. Equally disturbing is the fact that shareholders don't demand a change.
  2. Wall Street is still rife with conflicts: This is how one insider explained it to me: "Everyone knows that these big banks, including one that just delivered amazing earnings, use client information to their advantage all the time. But clients live with this fact because they are making enough money to rationalize the injustice."
  3. Banks chase returns: It was sad to hear Morgan Stanley CEO John Mack say that now, after the firm missed the 45 percent rebound, MS would assume more risk. Isn't this what got Mack into trouble in 2006 -- diving into real estate and credit after a massive run up occurred? Mack said that the company will be "increasing capital commitments in a disciplined way," which is code for: "someone start trading like Goldman so I can retire in peace next year!"
  4. Institutional investors chase returns: One hedge fund guy recently said to another, "I'm going to buy Google!" When asked why, the soon-to-be Google owner actually said with a straight face, "I don't know anything about the company, but I need to be in on the action!"
  5. Wall Street has no hubris: See my previous post, "Wall Street: Long Arrogance, Short Humility"
According to an new Allstate/National Journal Heartland Monitor poll, seven in ten Americans say that "when the U.S. economy recovers, the way the economy looks and works will be very different from what it was before the recession." I'm less optimistic, because it feels like the wonder boys and girls of Wall Street have the attention span of a flea, and that may be selling fleas short!

Image by Flickr User kat m research, cc 2.0

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