FYI: At $500 million in box office revenue and counting, we sure love Disney’s new movie “Beauty and the Beast.” With more than 1 billion sold, we sure love Apple’s iPhone. The same goes for Netflix, Chevy pickups, wide-screen televisions and grocery store aisles stocked high with fresh fruit and vegetables.
But for some reason, we hate the one entity that brought all these things within reach of most Americans: Wall Street.
Regards,
Ted
http://www.latimes.com/opinion/op-ed/la-oe-cohan-wall-street-regulations-20170402-story.html
Comments
It's an American tradition to poke fun at many of our most treasured and useful institutions. Certainly criticizing and even challenging the need for Wall Street and the Wall Street Stock Exchange have been the easy targets of those random potshots almost since their formation. That's the American way.
In one sense, that constant criticism measures its importance. Simply put, Wall Street is one of the primary resources that facilitate the transfer of money from those who want to profit from lending money to those who need it for business expansion purposes. We all benefit from the function. That facilitating transfer mechanism is one reason why the USA is number One in GDP among the world's nations. Life is made better here when business opportunities are served.
The marketplace has made a judgement on the need for the functions performed by Wall Street. The Wall Street Stock Exchange was founded in 1792. It's almost the same age as our Country. If it were not a necessary function, it would have disappeared a long time ago. That's a very simplistic, but a powerful argument in defence of its existence.
Are the guys who earn their pay working on Wall Street overly compensated? Are the guys who play major league baseball overpaid? Many of us would answer those questions in the positive. I would not do so. I might not agree with their compensation, but I believe that marketplace competitive forces determine the proper pay scale. My assessment is irrelevant to the outcome.
Wall Street does a necessary job regardless of its shortcomings. Likewise, its participants, who likely shortstop too high a percentage of the money exchange, perform a necessary function. That's just an opinion from a very ill informed outsider without any intimate insights into how Wall Street actually accomplishes its duties,
"Remotely possible" probably misrepresents Wall Street's impact, but Wall Street certainly impacts our "way of life". It certainly has impacted my way of life.
Best Wishes
Regards,
Ted
I'd have to agree with MJG on this one. Wall Street is a needed function that does benefit all of us here at MFO in that it is our main investment vehicle. . MJG's pay comparison between wall street and baseball players is a good one too. But like all capitalism, without regulation it will amount to corruption benefiting just a few. Maybe it leans that way a bit now.
We can start with Drexel Burnham Lambert.
http://money.howstuffworks.com/personal-finance/financial-planning/junk-bond1.htm
Even the insurance industry prohibits insuring a life in which you're not related. This is called the insurable interest doctrine. But not Wall Street.
"When the British Parliament passed the Life Assurance Act in 1774, it acknowledged that the opportunity to insure a stranger would create a 'mischievous kind of gaming' that allowed one person to profit from the death of another." Just for those who like financial history going back to the 1700s.
http://www.slate.com/articles/news_and_politics/explainer/2008/04/can_i_buy_life_insurance_on_a_stranger.html
But Wall Street in its infinite wisdom decided that trading credit default swaps that guaranteed bond payments was just fine, even if you have no interest in the income stream. CDSs as they became to be traded in the past couple of decades have no apparent use, at least in MJG's 1792 sense.
http://www.robinskaplan.com/resources/articles/credit-default-swaps-from-protection-to-speculation
See also, FT (2010): Call for ban on CDS speculation.
Rolling Stone pretty well wraped it up in one of its intro paragraphs on Bain Capital in 2012:
"Romney wants us to believe that critics of private equity are against capitalism. They’re not. They’re against a predatory system created and perpetuated by Wall Street solely to pump its own profits."
http://www.rollingstone.com/politics/news/why-private-equity-firms-like-bain-really-are-the-worst-of-capitalism-20120523
Let's not confuse cause with effect and needs with wants. If LewisBraham wouldn't be writing articles, you wouldn't be able to link them. What would you do?
Let the Wall street hagiography end, please, and the self-serving functionalist logic cease.
https://bloomberg.com/news/articles/2015-07-30/the-amount-of-etf-shares-being-traded-has-eclipsed-u-s-gdp
Then click here:
sifma.org/factbook/
The amount of speculation--paper trading hands--versus the amount of actual capital raised to ostensibly grow business (or to buy back stock and not grow business) is staggering. Just the ETF volume alone is about nine times the total amount of capital raised and larger than the U.S. GDP, and that doesn't include volume on individual stocks and bonds. If one believes in buy and hold investing and that market timing is impossible as I believe folks like MJG have claimed this is not a productive use of resources. It is one trader selling an already existing share of Microsoft stock to another who then turns around and sells it to another and another ad infinitum without providing Microsoft any additional capital to grow its business. Speculation has become Wall Street's primary business, while raising new capital is secondary.
We are pretty much on the same page in the book of primary investment motivations.. I surely agree that speculation, rather than prudent investing to generate a needed product, is now a dominant part of Wall Street actions. That's too bad, but that's the way it is, and that's the way it is likely to be in the distant future.
It is much easier to trade paper instead of actually making a product to sell at often a small and uncertain profit. That's why I invest in the stock market. So does most everyone else on MFO. We are all greedy, lazy bastards. Wall Street is even more so. That doesn't make them evil. They are just more money motivated than we are.
Certainly Wall Street is populated with some miscreants who are only motivated to game the system, and constantly scheme to bend the rules and their intent. That misguided intent exists in just about all industries. That misdirected penetration on Wall Street likely follows the ubiquitous 20/80 distribution. It is a significant minority. Again using baseball as an analogy, pitchers attempt to physically tamper with the ball between pitches to gain a small advantage.
Deep skepticism is a healthy, wealth protective attitude when a salesman appears at our doors, and when making an investment decision Rules and agencies designed to protect the consumer don't always work. In the CDO debacle, even the rating agencies (like Standard and Poor) improperly awarded these junk laden products triple A status. Good grief what a terrible job!
Just like Las Vegas, Wall Street is a survivor. Additionally, it does serve a useful function although that useful function is diminishing in relative importance to Wall Street's bottom line. It still directs money to businesses that benefit all of us. It's an imperfect system in an imperfect world.
Also, we love to gamble.
Best Wishes
noun: cynicism; noun: Cynicism
1. an inclination to believe that people are motivated purely by self-interest
Your statement is the height of it, but worse, I don't think you actually believe what you're saying. I often see you posting patriotic comments and footage about America's troops, etc. Do you think they're all "greedy, lazy bastards" or willing to sacrifice their lives for the greater good of our country and humanity? I think you are rationalizing bad behavior on Wall Street with a reductive specious binary argument when the spectrum of bad behavior--of the greed in this case--matters a great deal. In fact, your argument sounds a lot like this one:
Yes, everybody is greedy to a degree, but there are limits, lines, that to have a civil society individuals and institutions should not cross. Wall Street has often crossed that line.
Indeed I did use "greedy, lazy bastards" to capture attention. Apparently it worked!
It does overstate my true feelings about many of life's duties. I proudly served in the military, and did so without any feelings of regret or sacrifice. Money matters did not enter the equation whatsoever. I believe that feeling is very common.
When I used greedy, lazy bastards, I was restricting my thoughts and words to the investment industry. It was not a universal assessment. Even within the investment business, that is not an all inclusive, accurate judgement. I have benefitted from financial professionals who sacrificed potential personal financial gain to better serve their clients. That was not always the case. Thankfully, a full spectrum of behaviors and motivational priorities exist.
Women sacrifice for their kids all the time. We all set different priorities, and these priorities are not necessarily constant over time. Good for us.
Thanks for your prompt reply. I don't totally agree with the "greed is good" speech delivered in your referenced movie clip. Extreme positions are often dangerous things.
Best Wishes
Charlie Munger makes a pretty good case for the talent wasted by the suck of engineers and scientists to Wall Street when he laments over all the useful and enduring stuff they could actually do with their talents, rather than writing algorithms that skim fractions of pennies of dollars (or fractions of seconds off a trade) with no tangible benefit to society at large (I'm waiting for the "liquidity" defense, I wonder who will oblige?). I work with a Ph.D. scientist who left a Wall Street quant shop -- the money is reportedly wonderful while it lasts, the work itself is not so interesting.
Michael Lewis has written extensively since Liars Poker on the anti-social (perhaps better, sociopathic) nature of Wall Street. The book itself is like an onion, the more you peel the pages, the more you cry. Lewis would laugh at the idea of so many noble contributions to the common good. I think one could draw the same conclusion from his most recent books.
And then there is the matter of bonuses and compensation packages. Wall Street is not alone here, but its a good a place to start as any. All one need to do is apply a little common sense -- you don't even have to look as high as the 75th percentile of some of these salary ranges to start asking yourself if society writ large is truly well served by such concentrations of reward. In a previous life, I did a stint at a firm that designed executive compensation programs. Heady stuff: "the market" always flailing to catch up with "the market" in a dizzying cycle reaching higher and higher into the sky like Jack's magic bean stock, with no real justifications or sanity check of any kind. Every exec wants to peg his/her salary to someone the next tier up in the industry, the next higher quantile, etc. Some of the conversations one hears in such venues are ridiculous.
Does Wall Street perform useful and necessary functions? Yes of course. Should that give Wall Street a pass on excesses, and privatizing reward while being ever-ready to socialize failure? I'm surprised there really even needs to be a conversation on this after 2008.
Gott use 'HC' going forward.