Wall Street Bashing: Ongoing Intolerance from the Tolerance Crowd

It has been
more than five years since the spectacular bursting of the housing market
bubble, yet Wall Street bashing lingers as a curious blood sport, an unhealthy
and unproductive wound on the American psyche. It is an open wound whose
prominence, wittingly or unwittingly, touches us all, eliciting the worst in
society: envy, fear, blame, retribution, class warfare, and political strife. I
say it’s long overdue that we begin to let the wound heal, to – in inimitable
American fashion – once again unify rather than divide ourselves as a people,
to rediscover the essence of what underlies American greatness. That essence will
not be rediscovered through the all-too-popular hate-mongering tactic of
isolating the few to demonize the whole. As The
Wolf of Wall Street
and the many unflattering if not borderline conspiracy
theorist novels demonstrate, hyperbole sells. But are we that gullible to
believe that Wall Street is wholly corrupt, inhabited solely by bad actors, or,
for that matter, "rigged" as author Michael Lewis cleverly describes the US
stock market when promoting his latest novel?

Stated
differently, are we more content blaming others, refusing to accept the truth, or
failing to learn from our collective mistakes? Perhaps a brief summary of the
actual role Wall Street played in the creation of the 2008 meltdown is useful. And, to be unambiguously clear, it had a large
role that may best be described as an "enabler" in a crisis whose tentacles
obviously reach well beyond the industry itself. In fact, one might properly
conclude, once armed more with facts than sensationalistic hype, that the
meltdown was a broader societal meltdown with no shortage of places to cast the
blame. In no particular order, you have the decades-long political underpinning
dating back to the 1930’s New Deal era when Fannie Mae was established as a
means to facilitate liquidity and lending amongst banks. Freddie Mac was chartered in 1970 as a second government-sponsored
entity to compete with Fannie Mae as a secondary market vehicle to allow banks
to sell their loans. The Community Reinvestment Act was signed into law in 1977
to encourage banks to actively promote home ownership by lending more in
designated underserved communities. Mounting political pressure and litigation
from activist groups persisted into the 90’s, with the banks eventually forced
into making more and more loans that failed to meet prudent credit standards
that even Fannie Mae and Freddie Mac, ironically, wanted no part of. In the
background stood an accommodative Federal Reserve flooding the
consumption-based economy with cheap money.
These loans, not surprisingly, went on to become the subprime hot potato
that devolved precipitously from foreclosure to default. The politically
engineered rout from failed government policy – both liberal and conservative –
was on.

Alongside
this political engineering was the financial engineering of Wall Street, whose
vast innovation – securitization, derivatives, and countless other products
whose volumes can be denominated in the trillions – fed the beast by enabling
mortgage risk to become more liquid through broader risk distribution into the
capital markets. Paradoxically you had the strange bedfellows of Washington and
Wall Street motivated by votes and enormous deal fees, respectively; the
intersection of power and money on the grandest of scales.

As if this
lethal paradox weren’t enough, there were many others fanning the flames of the
meltdown deserving of dishonorable mention. Take the rating agencies, paid
healthy fees to rate virtually all of the deals sold by the banks into the
capital markets. How did their models get it so terribly wrong? Next you have
the fast-money mortgage brokers with no skin in the game moving mortgages from
one party to another while pocketing handsome middle-man fees. Then there are
the individual borrowers themselves who, like crack addicts, took the "free" money
to live lifestyles of abundance they couldn’t afford; though many of them
purport to have been duped by their evil mortgage provider, that simply doesn’t
hold up in the court of common sense. It’s a lack of personal accountability,
part of an entitlement culture that has developed in our country. What about
many of the most sophisticated investors in the deals who unduly relied on the
rating agencies to bless the deals as their due diligence? What about the
various regulatory bodies including the SEC and CFTC who, apparently, were unable
to keep pace with their private sector counterparts? What about FASB whose
accounting guidance of the eventual toxic assets fomented a liquidity panic, a
run on the bank, a mark to meltdown? Last, certainly not least, you have the
media and its penchant for sensationalism, the thinly-veiled purpose of which
was to sell its agenda and products to an angry and vulnerable public. In
summary, Wall Street, Main Street, and all streets in between share the blame.
It is not an "us vs. them" proposition.

Stepping
away from the wide net cast by the blame game, healing the American psyche will
also occur when we make two essential acknowledgements about Wall Street
itself. First, let us acknowledge that
as with all industry and enterprise there is always room for improvement,
behavioral, regulatory or otherwise. However, such an acknowledgement, to be
productive, should stop well short of the misguided crusade of bringing the
industry to its knees. There is no reason to vilify the industry in its
entirety, much like there is no merit in doing so with all professional
athletes, politicians, actors or others in high-profile occupations. Not everyone is Bernie Madoff incarnate, not
every Wall Street firm is Enron, not everyone is an inside trader, not everyone
is ethically challenged. The reality is much to the contrary, as my twenty
years in the industry informs me. Second, let us acknowledge the inexorable
social utility emanating from Wall Street. The industry, at its most fundamental
level, exists to create a river of money, a gateway to capital and heightened
liquidity, the innumerable benefits of which extend well beyond the pockets of
bankers in the form of general economic prosperity – job creation, access to
credit, and, most importantly, belief in the opportunity that exists for all
Americans. The stagnant or contracting economy of the post-2008 Wall Street
bashing era best illustrates the point; indeed, there are too few winners in an
environment marked by uncertainty, institutional fear of reprisal, and widening
income inequality.

Might I
suggest, as a potential inconvenient truth not of the Al Gore variety, that the
ongoing vitriol directed at Wall Street by its detractors – the bashers – is part
of a deeper, more insidious game. That game, you may wonder, is the politics of
division. It is a game, by its very design, that creates warring factions
cutting across cultural, religious, ethnic, sexual preference, gender, as well
as many other differences that once defined us and were considered foundational
to America. The same common thread that unified as a people in the past now
divides us.

Let me close
with a final observation about Wall Street, among the greatest of the many
double-standards arising from the politics of division. In a society which currently
places a never-greater emphasis on tolerance, how is that we allow so many to
be viscerally intolerant, irrationally so at times and with little or no grasp
of the facts, at the mere mention of Wall Street?

Facts,
understanding and time heal all. It is time to stop dancing on Wall Street’s
grave.

Scott Stevenson is a former
investment banker, a social and political centrist, and author of recently
published Decay Time – A Wall Street
Murder and Morality Tale.

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