Wall Street: a location that conjures up images of wealth and imagination, along with notions of endless possibilities and the American dream. More recently, it has been seen as a pit of spite and greed overrun by win-at-all-costs robbers wearing $5,000 custom suits.
The truth is probably somewhere in the middle, but the bankers and traders who occupy the Wall Street sphere, which extends well beyond the intersection of Nassau and Broad in lower Manhattan, have certainly done their fair share to deserve the latter characterization.
For many people, everything that’s gone wrong with high finance’s way of doing business can be symbolized by one firm: Goldman Sachs. What was once a revered investment bank, respected for its philosophy and renowned for the acumen of its employees, is now public enemy No. 1. And the feds are finally closing in: The U.S. Securities and Exchange Commission settled with Goldman in July for $550 million, but filed a new fraud claim four months later against its trader and poster boy Fabrice Tourre.
Two years ago, most people knew little about Goldman, if they’d heard of it at all. Why should a farmer in Nebraska care about an investment bank in New York, and what is an investment bank, anyway? Similarly, if you weren’t insured by AIG, or if you didn’t have a mortgage originated by Countrywide, you probably wouldn’t have given those firms much thought. How quickly things can change.
All you need is a meltdown of the financial system that leaves power and wealth in the hands of a privileged few, some multimillion-dollar bonuses, haughty executive dismissals of pointed questions, gleeful emails talking about “poor little subprime borrowers [who] will not last so long,” and descriptions of “a great vampire squid wrapped around the face of humanity,” and you have the formula for a change of public opinion about Wall Street. More simply: I didn’t know you before, but I really dislike you now.
The primary goal of Wall Street is to make money — not a new notion. But the financial crisis has led to Americans re-evaluating the tactics used to get that money. We wonder how it is that someone needs to make $50 million a year. We might not begrudge anyone that; we just hope they’re doing something really useful with it, like curing cancer or founding literacy centers. But when we find out the financiers are basically moving pieces of paper around, or are making bets on “stuff,” some of which they have never and will never actually own, and some of which exists only as a concept and not in the real world — then we start thinking that’s a little strange (and watch indignant documentaries on the topic).
And Goldman’s not the only target of public outrage. There’s AIG’s repeat bonus round in April, or Countrywide’s cover-ups — which cost its CEO Angelo Mozilo $67.5 million in fines and reparations in an October SEC settlement. The anger extends to the likes of Citigroup, Fannie Mae, Freddie Mac, Merrill Lynch, and their ilk, firms that received billions of dollars of taxpayer-funded bailouts to stay alive or that were scooped up in fortuitous mergers, with the federal government’s stamp of approval. Some of the companies were too big to fail, a rather duplicitous phrase that means if they were to vanish, the entire economy could suffer mightily. Average Americans didn’t create the mess, but they’re sure having to clean it up.
In 2010, a serious push was made to level the playing field, to reset the accepted way things were done, and to keep the public from again getting on the hook for Wall Street’s excesses. The centerpiece was the Dodd-Frank Wall Street Reform and Consumer Protection Act. In short, the measure was meant to protect consumers, ensure another financial collapse didn’t occur, impose stricter rules on certain securities, render bailouts unnecessary, and stop firms from getting so large that they are virtually single-handedly responsible for the health of the economy. While the goals are far-reaching, Dodd-Frank hasn’t resolved everything, including questions about compensation.
Meanwhile, the Feds, reportedly planning on insider trading arrests before the New Year, has raided hedge-fund offices. The SEC, on a roll, is investigating JPMorgan and Citigroup on yet another improper collateralized debt obligation.
Heads may roll, but they’ve rolled before. Wall Streeters always find means to get their money. They adapt. Laws through the years and unforeseen crises have shown that again and again.