Why I Won't Shed Tears For Wall Street

Call me small-minded, or vindictive, but I don't feel sorry for Wall Street.

Yes, I realize we're in a crisis and suffering through the roughest economic patch since the Great Depression. And I appreciate it isn't nice to pick on someone when they're down.

But I'll be honest, being charitable is not my first instinct here. There's part of me that resents Wall Street, especially its slew of money-hungry CEOs, cavalier investment bankers, heartless merger and acquisition specialists, and red meat-loving traders. I'll add to this lot the relentless gang of stock market pundits and pickers, who rant against even modest industry regulations or investor protections for fear of derailing their fantasy of a pure "free market" society. To each and every one of them I say:

"Tough luck, folks. Your day of reckoning has come. You're getting just what you deserve."

It's too bad so many innocent people will have to pay for their avarice and hubris--especially those being tossed to the curb without work or prospects.

This is not some sudden backlash brought on by my staggering 401K portfolio or a rant sparked by uncontrolled panic that the stock market is forever down and out.

No, this resentment has been building for some time.

For more years than I care to remember I've reported and commented on business. When I began plying my trade as a pup reporter, publicly-owned companies didn't fixate on their stock prices as they do now. The stock price was an important component of something more grand: How well the company was managed; product quality; innovations; customer satisfaction--you know, the business.

And Wall Street? That was a place where companies went to raise capital for expansion and new products.

This was not a perfect dynamic. Often, top management was removed from the real world. But, on balance, I'd argue companies that focused on their knitting, and not merely pleasing shareholder interests and investment analysts, usually produced leaders in big industries like automotive, consumer products, financial services, technology, etc.

Over time that changed. Shareholders--especially institutional shareholders with ties to Wall Street-backed financial muscle--started pressing companies for greater returns. The mantra: Maximize shareholder value.

So, what mattered before didn't any longer. Shrewd CEOs quickly learned to bow to the almighty stock price or risk getting dumped. In essence, companies were being managed by institutional shareholders, backed by Wall Street investment houses.

For years, this situation has made life miserable for management teams that don't always meet or exceed quarterly profit and stock price expectations.

I recall a conversation with a CEO of a major company who ruefully told me that business wasn't the same anymore. Why? Because long term planning and investment were out and share price trumped every other concern.

Now ask yourself: How many companies have been damaged in the name of maximizing shareholder value? How many unnecessary mergers, spin-offs and other dumb deals were spawned just to give the stock a jolt? How many jobs and benefits were cut because Wall Street said that was an easy path to operating "efficiencies" and greater short-term returns?

Wall Street defenders will argue that shareholders made a killing. Some did, some didn't. But I guarantee you that every investment bank involved in these transactions walked away with ample fees and never looked back.

Not satisfied with disemboweling Corporate America, investment banks turned to Main Street.

Once there, they encouraged lenders to keep making questionable subprime mortgages.Yeah, banks and mortgage lenders caused their share of problems by originating these awful loans. But Wall Street investment firms compounded the problem by manufacturing a market for these crappy credits, packaging and selling them to big and small investors globally in return for fat fees that translated into hefty annual bonuses.

Any attempt to throttle back this excess through regulation, or sheer common sense, was beaten back by Wall Street's protector class--those bellicose traders, pundits, economists and stock gurus who blindly fight even the most minor regulatory enforcement. You know, the crew that ends up regularly on CNBC's Larry Kudlow show. Their type helped provide cover to the Bush Administration, which didn't want to stop the mortgage music anyway.

The real irony? The investment banks caused all this mischief on borrowed money. The bankrupt Lehman Brothers, the near-bust Bear Stearns (now part of JPMorgan Chase) along with "independents" Goldman Sachs and Morgan Stanley had leverage ratios in excess of 30 before it hit the fan.

That means for every dollar in the pot they borrowed $30. And these guys were being paid huge money for financial advice?

In my old neighborhood, we had a saying: If you owe someone a little money, they have you. If you owe them a lot of money, you have them.

Wall Street owes us a lot for these taxpayer-backed bailouts. Man they got us good and that's why I'm not shedding any tears.

Instead, I'm concerned that when this financial mess has passed, Wall Street is going to try and get us again.

Then we can all have a good cry.

Comments

[ShinjiIkari]

This afternoon cable is showing "Jurassic Park" which in its way is a parable for the economic mess. Wall Street banks, insurance companies, the energy sector (ENRON, anyone?) and the other dollar-chasers were like Hammond: so busy working on the "technically sweet problem" of bringing T Rex back to life that they didn't wonder if it was a good idea. ("Technically sweet problem" was coined by J Robert Oppenheimer while he worked on the atomic bomb, and in "Jurassic Park" the money-hungry hacker had a picture of Oppenheimer taped to his monitor.)

As Malcolm might put it, the lack of humility when confronted with market forces was astounding. People thought they could run it, when it's actually running us.

I think the only way to make sense of the market in a way that sustains the best life for the most people is through a part of the Old Testament: "To everything there is a season." There is a time to regulate and a time to deregulate; a time to accumulate wealth, and a time to use that wealth for the benefit of others; a time to be a citizen of America, and a time to be a citizen of the globe. McCain doesn't get that at all; he's stuck in the military mind-set of victory or death, as well as in a belief in voodoo Reaganomics. He should let himself get trounced in November and retire to one of his seven houses.

[PhantomAviator]

..

Too many.

That's what happened to my "good" job.

Cut for the sake of that 15% gain per year.

.

[iambusto]

i laugh at the people who are all happy about the fall of investment banks. you guys think you are all immune to it huh.

before you know it, it already will hit main street.

Try getting a home loan these days (even with 700+ credit with 10% down payment) and see how hard it is?

try getting a student loan these days?

the businesses that fund working capital with commercial paper are already worried!!

Credit is going to be so squeezed the small businesses wont be getting any loans for a while.

Wall street firms falling bring out the joys and laughter from liberals huh. Wait till the other main street layoffs hit the public on the head.

HP layoffs of 26000 is a good place to start. bring it on !!

[Herrington]

Yup. Its good to be a slave to capital.

[DrFitz]

Of course this will affect everyone. You think no one is aware of that? The issue is that WAY too much of the economy is tied up in Wall Street activities relative to actual value added. I agree with Stiglitz when he said it's clear they've been far overcompensated relative to actual skills in managing risk and allocating capital to things other than those that generate big fees for themselves.

[Herrington]

Thanks, you jogged a piece of the big picture puzzle into place for me. I had thought for a while that when the M&A sharks got through squeezing the last bits of solvency out of the American business model of our fathers, they would turn to another source. I assumed it would be off shore and was waiting for signs. But silly me, other countries, including China and India, are not nearly as foolish as we, not nearly as blinded by ideology.

No, the sharks turn from Wall Street to Main Street. With hordes of cash from a logrithmic increase in concentration of wealth and no place to put it they sent it on a mission to create the securitized loan bundle. Flush the cash through an impenetrable labyrnth of transactions and no one will be able to tell what it is other than by the price it is offered at and what someone else has paid for it. The problem of course is that greed knows no bounds.

Just like any criminal, they kept going to rob the same address where they had robbed before. There was never any doubt then that they would be caught, just when.

And like you Reed, I have no sympathy. When it is all said and done, the uber rich will have seen their assets cut by half.

Had they given their workforce raises instead of hoarding the profits, the cash would still be in the economy and not have just disappeared.

[cylindar]

Why cry? Get even.

[MajorKong]

"Because long term planning and investment were out and share price trumped every other concern."

This pretty well sums it up. This is the financial equivalent of eating your seed corn.