Why I keep beating up on Wall Street

This post is in response to fellow True/Slanter Paul Sullivan’s “Why I keep sticking up for Wall Street”

I have to congratulate Paul for having the courage – some might say chutzpah – to defend the indefensible and provide cover for an industry whose greed and shortsightedness is widely seen as a major catalyst of the current economic crisis.  That’s about all I can congratulate him for, however, as the rest of the post is such a motley mix of evasions, straw men, and buck-passing that I had a hard time knowing which misdirection to take on first.  

The biggest red herring is the idea that those who strongly criticize Wall Street believe it is the only guilty party.  Obviously, the financial crisis is complex and systemic, with a host of causes and an array of actors – all of whom would love to leave failure an orphan.  But that doesn’t mean some parties aren’t guiltier than others, and it takes a lot of semantic gymnastics to not put Wall Street in the number one or two blame spot.  Personally, I’d nominate the government (under the spell of people like Greenspan) as the  number one culprit – but only because it let Wall Street off its leash.  The financial industry used to be considered a middleman in the economy, raising capital for industries that produced tangible products and services: an island of speculation in a sea of production.  But thanks to a generation of laissez-faire thinking and deregulation love dominating both political parties,  that equation was reversed and the Casino Economy came to dwarf the Real Economy.  Financial industry profits went from only 16 percent of corporate domestic profits to 41 percent this decade, and average individual compensation in that sector reached 181 percent of the average for all domestic industries -far more than an intermediary should make.

What does this matter if the money was coming in?  Because a good deal of that wealth was just plain fake, and in some cases, possibly criminal fraud, and I’m not just talking about the Ponzi Schemers.  I don’t think you can draw a fine bright line between Bernie Madoff and say, AIGFP’s Joseph Cassano.  And it wasn’t just the boys at the top – the terms “LIAR” and  ”NINJA”  loans showed how much was known about the worthless nature of these products by the guys in the trenches.  When people rake in money knowing they’re selling a bunch of garbage, we don’t call them salesman, as Paul does – we call them con men, or worse.  He compares them to coke dealers in his post (in their defense?), but even that’s a touch too nice, I think.  They’re more like the dealers that sell drugs cut with rat poison or arsenic to make a few extra bucks.  You can rightly blame the people who are ripped off for being naive or greedy themselves, but society has always looked down more on the scam artist than the victim – rightly so.  The industry made billions ripping people off, and now they whine and cry that they’re being picked on.  Wall Street not only doesn’t want to take all the blame – they don’t want to take any blame.   If there were the least sense of contrition or self-awareness in the finance industry’s statements or behavior, than maybe we’d go a bit easier on them. We’re mad at Wall Street because they aren’t sorry in the slightest and they haven’t learned a thing.  They’d do it all again tomorrow.   

But, as important as it is to properly assess the culprits for investigators and historians, it’s a matter of more immediate concern for the rest of us since the same group of corrupt elites that got us into this mess is still running the show.  Geithner’s Great Giveaway to the banking system – secretive and preferential – shows although the political party in power has changed, the oligarchy remains untouched.  As Simon Johnson points out in his excellent Atlantic article, The Quiet Coup, this group’s stranglehold over our political system threatens to turn a deep recession into a Great Depression II, as they will fight regulation and transparency tooth and nail, and attempt to force the public to swallow their losses.  They had a hell of a party and now they want us to pay the tab.  Heads have to roll, not just from a sense of righteous indignation, but because we have to replace the incompetent kleptocrats before they do more damage and just generally, shrink the financial industry back down to a reasonable size.  As Felix Salmon has said, if that’s called “hurting” them, then, yeah, we want to hurt the financial services industry - in the sense of never letting them getting that big again.  When they become that mammoth, they can simply purchase politicians and have them change the rules, and What is Too Big to Fail today may be Too Big to Rescue tomorrow.  But commentators like Paul are still in that “government bad, business good” simplistic mindset – as witnessed by his sneering at ‘midlevel bureaucrats’ and the idea of government being involved in the economy in general.  Yet, it would be hard to see how they could possibly be more efficient destroyers of wealth and productivity than Wall Street has already shown itself to be.  Considering the damage they’ve done, I’d say they had it pretty easy.