Don’t Blame Wall Street - At Least Not Completely

My dear friends, Americans, we stand this day on the precipice of abyss, and while I never mince words, I neither exaggerate words in saying so. A horrible misconception is greatly disturbing me, and I feel it's fueling a good deal of argument against this bill.

You want to blame the rich blue suits of Wall Street, because you are sure they are to blame and you are comforted to hear others doing so as well. Also, you see Lehman Brothers and Bear Stearns now nonexistent and Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) fighting for survival. You note the stock market is nearing 30% collapse, and you see Wall Street on the front page of your daily paper. You hear about the excessive compensation of self-seeking CEOs, and you witness the witch hunt for their heads as human behavior drives counteraction.

Many people, many segments of American industry are to blame for the mess we are in, and even you and I are to blame. Just the same, it was Wall Street's contribution to this mess that is the same contribution which allows almost every American the opportunity to own a vehicle, and even a home. What separates the average American from the average third world suffering citizen is surely in part American creativity, invention and will. Why does a man in one nation have a job at Wal-Mart (NYSE: WMT), Target (NYSE: TGT), The Olive Garden (NYSE: DRI) or Disneyland (NYSE: DIS), and own a car and a home, while another across the world struggles to keep his family alive? You can partly thank Wall Street for that, because one man is not more intelligent than the other, nor embodies greater work ethic than the other.

Wall Street did nothing more than create financial securities, specifically secondary markets in asset backed securities, that allowed Americans to live the American dream. They created securities, they bought them and sold them, held them for investment and traded them for fee. That's all they did. Meanwhile, as a result, the every day Joe was able to own a home and a new car too.

I'm not saying that excess does not exist on Wall Street; that would be gravely naive. Certainly excesses generated from greed took a well-intended idea, however profitable, and led it to dangerous extreme. But Wall Street is not solely to blame for that, nor is Wall Street solely to blame for every stock market downturn or economic cycle trough. Wall Street bears the pain the most, and enjoys the fruit at the highest.

Let's not overlook others equally at fault:

Credit Rating Agencies

Let's start with the credit rating agencies, Standard & Poor's (NYSE: MHP) and Moody's (NYSE: MCO), that supposedly analyzed these securities and negligently labeled too many of them investment grade. That little mistake which made no difference as long as home values rose, made all the difference as the housing bubble busted. It was their job to decide how risky these investments were, so how hard was it to envision the scenario of home price decline and why didn't they? Is price decline so abnormal as to not be included in scenario analysis?

Each bank that now owns these securities, and falls into bankruptcy because of holding them, trusted these organizations to do their job correctly. They were supposedly a trustworthy voice to be believed in these matters. Nothing was sold that was not rated by these organizations. So don't blame Wall Street alone while ignoring Water Street!

These assets, whether backed by mortgage loans, commercial loans or consumer credits, embody the securities the Treasury Secretary plans to buy with your $700 billion. These are the illiquid assets that are clogging the financial system. These are the securities that prevent banks from lending to one another. These are the securities that marked-to-market are now worth well below the value they were suppose to have, the value that was supposedly appropriate for the risk born. These are the securities that cause your banks to take massive charges. These are the securities that lead to insolvency. These are the securities that have caused bankruptcy. These are the securities that our government now needs your tax money to purchase, $700 billion to $2 trillion in total, to remove from the balance sheets of our financial system. So, if you are looking to place blame, consider these firms equally to Wall Street's financial designers.

Mortgage Brokers

It was mortgage brokers who created liar loans. It was mortgage brokers who extended opportunity beyond its natural reach. It was mortgage brokers who propagated the excesses of housing price rise, partly at least. Most of these people are out of their jobs now, but many banked their profits and walked away. Sure, after the fact, many came to trial, but part of the blame belongs there as well. Also, some of the banks that originated these loans took on great risk for the sake of greed. These banks are not on Wall Street, but it's easier to blame the guys on the golden hill for all our woes. Greedy men in these other banks originated bad loans, and sought Wall Street's help to package them and sell them since they could be rated investment grade and dumped onto others. That greed is partly to blame as well.

Ourselves

Look no further than the mirror.

We neglected these errors. You and I, our elected officials, and the agencies we've established to watch over the activities of mortgage brokers, credit rating agencies, lending practices and securities creation, the collective group of us failed.

And please do not politicize this. This is not a Republican problem nor a Bush Administration issue. It's not the creation of the Democratic Party either. This is not John McCain's fault, nor Barak Obama's misunderstanding. This is a problem endemic to our society.

Society

Our society is to blame - our encouragement of easy living and good times.

The cheating we overlook in our schools, the free pass we give to negligence there; the selfishness throughout our society and deficiencies of our family structure; these are to blame as well. The easy going mentality that we have sown into our society, the 9 to 5 work day we arrange so as to allow for the life we think we deserve, this is to blame. The little consideration we give to our day's work and to our life's passing, this is to blame.

More specifically, the priority we give to Thursday night bar outings, beginning in college and extending throughout our lives in many instances, this is to blame. The priority we give to sports over church, this is to blame. The speed with which we rush to fight, before we offer outreach, this is to blame. The "entitled-to mentality," the "me first" way of thinking, this is to blame. The circle within which we enclose our love ones, and at the same time use to keep out the rest of the world, this is to blame.

People just like you and me made these mistakes, and people like me and you allowed it to happen by not staying informed with the goings on of our society and by not seeking to improve upon it. But, we looked the other way didn't we. After all, we were happy while driving our new cars, which we surely could not afford without credit nor deserved due to equal value work completed. Same goes for that first home we purchased. It made it easy to look the other way, to completely miss the "too good to be true" rule.

So don't go blaming some fictional enemy you've created on Wall Street. I've been to Wall Street. I worked on Wall Street. I know Wall Street, and it's no different than Main Street.

Of all the fools I've seen speak today in the House of Representatives, there were a few clear-minded voices I now admire. Maxine Waters, for one, is neither from my neighborhood nor from my party, but she made perfect sense today and her voice deserves credit.

Not Bailing Out Wall Street

The most important point I can make is that we are not bailing out Wall Street. Wall Street is bankrupt already. The Wall Street machine is broken. We're not bailing out Wall Street, but if we were, they would deserve as much as the Main Street banks we really are saving. Washington Mutual (NYSE: WM) is not located on Wall Street. Wachovia (NYSE: WB) is neither on Wall Street. National City (NYSE: NCC) is no where near Wall Street. Corruption is not isolated to any one place, no matter what you think. Also, wealthy individuals are NOT always corrupt, whether they own a car lot in Pennsylvania or a brokerage firm on Wall Street. You know as well as I do, corruption is not a rarity in our society. Selfishness is not uncommon. So, please do not draw a black circle around a place somewhere far away where people just like you and me live and work. Some of the worst men I'll ever know work on Wall Street, but some of the best men I'll ever know also do.

Our financial system needs fixing. This is the problem. These assets and their faults are not the sole responsibility of Wall Street, though Wall Street is feeling the pain more than anyone so far. You know, sometimes the sick are shunned just because they are ill. Lepers were sent to far away places long ago, just because they had a problem. All throughout history, men have been blamed for their own problems. People have been killed because of the problems of smaller societies they dwelled within. Wall Street is reliant on trade, and so when liquidity dried up, Wall Street got sick first. But, this problem is not the sole responsibility of Wall Street.

Sometimes people are to blame for the problems of many innocent, but these assets have existed for a long time my dear friends, and our economy thrived partly because of them. The average Joe in America has lived a far better life than the average Joe in the third world, partly because of these securities that allowed for it. So, while I will not absolve Wall Street of all blame, I will not attribute all the blame to those folks either. But, most importantly, the other financial institutions now sick with the cancer of these securities need radical surgery. Otherwise, make no mistake, you will get sick as well. These are your banks, and they fund your life.

The Emergency Economic Stabilization Act of 2008 just failed in the House of Representatives. I am reviewing the bill in detail. I suspect I will also find faults with it. However, we must support some form of government intervention, which I believe should be based upon the Paulson plan; because otherwise I believe we very well could see the support of the failings of Ron Paul and Dennis Kucinich led bull-headed, self-righteousness (and ignorance) help to destroy American life as we know it.

Comments

[Sperry8]

Puhlease!!! We had a higher standard of living than the 3rd world well BEFORE secondary markets were created to trade in asset backed securities. Home-ownership and ownership of cars will continue. So will jobs at Wal-Mart and Disney. What will not continue is high risk companies who got burned. This does not mean ALL banks... some wonderful one's will continue. Wells Fargo. Bank of America. Citi. Wells originates home loans. But smartly. They took risk, just not bad risk. And so they survive and possibly grow. Citi originates loans. Not as smartly as Wells. But they diversified better so they could absorb this risk. They survive and even get too buy assets at distressed prices. The stronger companies survive and will generate increased earnings for it. This is how we are paid via stocks - and it will eventually show up in the prices of the market. Short-term... let the bad companies go under. I don't want to save bad companies. Take the $700 billion and do some good with it. Provide affordable housing maybe. But certainly don't use it to prop up companies that do not know how to manage risk. This only undermines the ultimate success of those that do. And that will lead to a healthy economy and stock market.

2008 Sep 29 04:42 PM

[junkyarddog]

It's hard to follow this article, the author is all over the place trying to look for a culprit. HAVE YOU EVER HEARD of D-E-R-I-V-A-T-I-V-E-S?

"These are your banks and they fund your life". I love them too: when they made billions with the housing boom I don't remember having a share of their profits. Now that they collapsed (google "derivatives") they want the taxpayers to jump in. No one needs that kind if funding.

I can't stand when amateurs write articles to Seeking Alpha.

2008 Sep 29 05:16 PM

[BearBull]

I agree with Markos for the most part but I don't think that politicians can grasp the complexity of the economic implications in passing such legislation. In other words I view the legislation as a gamble that only addresses the collateral damage and not the systemic cause of the financial crisis. Markos did point out the fundamental cause of the crisis and it is not Wall Street, it is the entitlement mentality that coerced lax loan requirements and put people in homes and automobiles they did and do not have any business owning. Until there is a fundamental shift in the personal consumption and saving patterns of the U.S. consumer this problem can not go away. The lack of savings by U.S. citizens is irresponsible and why housing prices have to continue to fall and continue to put pressure on the financial system.

If the proposed legislation universally punishes and rewards throughout Wall Street and Main Street I see no alternative but to approve the legislation even though it will not remove the uncertainty in the market. The uncertainty will not go away in the short term and will only dissipate in the long term when the underlying U.S. economic household fundamentals correct themselves over the next 24 to 36 months. How many consumers have 20% down payment for a home? How many consumers can afford that $500,000 to $1,000,000 home and stay at or below the 30% gross income mortgage threshold? While these metrics didn’t matter a year ago…times have changed and now U.S. consumer behavior has to change!

2008 Sep 29 05:27 PM

[rmarie]

I stopped reading at the "what great nation allows someone to have a job at Wal-Mart and own a car and home." I think someone needs a dose of serious reality.

2008 Sep 29 05:30 PM

[my2bits]

The people that are being foreclosed, primarily those who initially received subprime mortgages, should never have been given a loan to buy a house. These people were renters and will become renters again. Although it’s always tough to see somebody lose their home, the people being foreclosed on are not your typical American homeowners. They probably put a low or no down payment on the home, and had interest only payments probably not a lot different than they would have paid if they had continually rented.
The foreclosed houses are now flooding the market, and that excess inventory will be sold over time, then the normal supply and demand will work within the housing market.
This situation does not justify a $700,000,000,000 bailout for the banking institutions. The banking institutions that invested in these mortgages made a terrible mistake. The American System of capitalism allows people to make mistakes and go out of business. That’s the way the System Works.
If Congress agrees to the $700,000,000,000 bailout, this will bring the total government intervention to approximately one trillion dollars. This is a huge amount of money.
Forget any type of universal Health Care, look for downside adjustments in Social Security, Medicare and veterans benefits. There will now be significantly less money, for things we really need, like university education, infrastructure, dealing with catastrophic climate change, and all of the other things that we depended upon the Federal government to help finance.
Let’s give a thought to what would happen if the United States defaulted on its debt? I personally believe it’s not a question of if, it’s a question of when. Economic experts have predicted that the total cost of the war in Iraq, including long-term care of the seriously disabled veterans, will probably reach three trillion dollars. Plus you add the $700,000,000,000 bailout, to our already enormous debt, over $10,000,000,000,000. And of course we have the baby boomers starting to retire, this huge bubble in our population now starting to retire, will put a huge financial burden on Social Security and Medicare. I think we are in grave danger of not being able to afford even the interest payments on that debt, and default may be the ultimate answer. So if you believe the above scenario, now we are looking at a real financial disruption for the entire world economy.
As far as a lack of liquidity in our economic system, this basically means loans. Making loans to home buyers to and corporations is a profitable and legitimate business. There are many institutions in the world that are in the business of lending, they have sufficient liquidity to make the loans that America needs. We need to think globally in the global marketplace. Like it or not that is the reality of the world today.
Modern economics dictates that when bad decisions are made in business those businesses usually fail, and other businesses will take their place. Some will make it some will not. If there’s profit to be made, and capital available somewhere, capital will come and the job will be done.
Markets will prevail, we really do not need to bail out the rich guys one more time; on the backs of the working people and the taxpayers.
Neil Davis in Rocklin California
ronna_and_Neil @ hotmail.com

2008 Sep 29 05:33 PM

[User 86999]

Stop the propaganda. The Level 3 assets with opaque books unable to explain the true value of assets and a whole lot of junk used to bloat the books to make the hefty incomes and bonuses does not fall in line with legitimate reasonable business practices. You cannot convince anyone who understands the accounting books, but good luck with some simpletons who may buy illogical random thoughts. Ron Paul has it right, once you are able to grasp the knowledge!

2008 Sep 29 05:34 PM

[MarvinMBA]

STOP BLAMING THE PUBLIC...OUR ELECTED REPRESENTATIVE JUST WANTED TO KEEP THE ECONOMY GOING UNTIL AFTER THE ELECTION AND THE GAME PLAN FAILED...NOW STOP BLAMING THE AMERICAN PUBLIC AND WHY SHOULD THEY BAILOUT THE LOSERS...THE PUBLIC HAS PAID A TERRIBLE PRICE ALREADY AND NOW YOU WANT HIM TO PAY MORE...WE NEED A BOTTOMS UP PLAN NOT NOT NOT A TOP DOWN SAVE THE LOSERS PLAN THAT WILL DESTROY MAIN STREET..MarvinMBA

2008 Sep 29 05:46 PM

[ValueHunter]

He lost me at "we stand this day on the precipice of abyss", we stand at the edge of a precipice or abyss...oh wait, maybe he's right, like Wiley Coyote, we do indeed "stand" on a precipice of abysmal depths.

2008 Sep 29 06:02 PM

[MarvinMBA]

MAIN STREET BAILOUT INSTEAD OF WALL STREET
Its important to save main street instead of wall street brokerage houses...the supply and demand for the toxic paper will eventually reach a equilibrium without a bailout....what the country needs now is to get M1 on the move upward and that requires a return to fundamentals...reduce taxes, lower energy prices, adequate jobs for whoever wants to work. This is the Main Street Bailout that will answer all questions going forward.

2008 Sep 29 06:08 PM

[Homer II]

I am glad this is all coming apart at the seams. We'll get rid of all the charlatans driving leased Lexus' and Hummers, living in homes they can't afford, buying furniture, gaoline and groceries on their CCs until there is no tomorrow. Well tomorrow is yesterday and reality is starting to set in.

The values of saving, living within your means (income > outgo), delayed gratification, reaching retirement with no debt, neither a mortgage nor any CC debt, owning both vehicles, and two 6-figure portfolios, both 100% in cash ATM is rewarding.

2008 Sep 29 06:16 PM

[kybdmanic]

Possibly the most enlightening script I've read to date about this mess. Puts it in perspective and points the finger where it ought to be pointed, at us all.

2008 Sep 29 06:36 PM

[corsair]

I have to admit I'm loving it all. I'm so happy to see my country fail because the empire will continue to crumble. A crumbling empire means my tax money won't be used to finance big corporate interests in places like Baghdad, Kabul and Quito. Abolish the empire to save America!

2008 Sep 29 07:28 PM

[Perception]

When did seekingalpha become a forum for whining, morality-based diatribes? Please, someone remove this emotion-driven garbage. Replace with something slightly interesting and meaningful.

kthxbai

2008 Sep 29 08:08 PM

[User 272531]

I could not agree more strongly, we need an infusion of moral strength and personal responsibility. I suggest a return to our Pilgrim work ethic, which brought us our prosperity in the first place. Let us champion noble virtues once again, ignoring selfish shouts for immoral behavior as "rights" such as greed, lust, and gluttony. Half of our nation is now either obese, on drugs, or in jail. Our politicians and our society is selfishly pushing 10 to 11 trillion dollars of debt on our children and grandchildren. It would be better to suffer now instead of ruining their future to feed our selfish desires.

2008 Sep 29 08:13 PM

[ussmex]

After his first big bonus check Markos was probably driving around in a Ferrari telling girls how much money he makes. Don't take the credit, Markos, if you don't want the blame.

2008 Sep 29 08:51 PM

[mark hayek]

This concept of "Wall street" that hte author says is the normal guy like main street guy is a bunch af malarkey. Some of "average Joes" have done our homework, have paid 20% for our mortgages, have paid our tax $$, have invested wisely, picking stocks that create a risk diversified portfolio. but now, you are saying that the risk takeres, the Wall street bankers should be seen as only partners in the crime is an oversight. The big bankers set the policies, the rules for mkaing the damn stupid loans to people who cannot repay. The bankers sit happy behind their laws and secondary markets all fat and happy, meanwhile, the people who tried hard to meet their requirements get fooked on the sideline. This catastrophe needs to happen ,let it roll, let the big banks fail, bring it on, let it happen, the smart people only gambled a little , and put the good money in safe places, an oxymoron these days.
let the bankers fail, pour the bailout money into the mortgage market you capitalist mongers. Let the consumer be king, let him win, and he will spend his way thru this mess. Let him spend , spend all the way to the bankers delight. Finance every darn thing. Just don't spook the new money, the investors with cash.

2008 Sep 29 09:18 PM

[Kint]

This is absurd.. this is like saying "society is to blame for that criminal who robbed the bank, because as a society, we all failed the criminal." Before we get into this philosophical debate, we should begin by looking at the hard facts, and those hard facts lead straight to Wall Street. They shoulder 90% of the blame.

2008 Sep 29 09:19 PM

[Kevin Lamson]

If "Wall Street is Bankrupt" then why are the same executives and directors still running the companies. When companies go bankrupt their management is ousted and replaced by trustees. Whose duty is to operate or liquidate the enterprise for the benefit of its creditors. For soem reason Hank Paulson's 4 page "bailout" plan left his old Wall Street cronies in charge of their respective companies as well as the shareholders keeping their interests intact. I'd like this plan if I held $500 Million in Goldman Sachs shares as Hank Paulson reportedly holds.
I would like to personally like to applaud each and every American who called or emailed their congressman or women and expressed their outrage with Hank Paulson's 700 Billion bailout plan and/or the various ad hoc amendments that were made by Barney Frank and Company. This so-called 700 Billion Bailout did not address the root causes that resulted in our economy taking on water and what is needed to fix those problems.
The only people who were touting this 700 Billion bailout appeared to be Wall Street and its televised shills and of course our always misinformed President, Mr. Bush. Americans have responded to this fear mongering by Wall Street and its friends in the media by saying NO to this bums rush bailout. Now we will see what kind of crazy new claims Wall Street will make for "imediate" releif to socialize its loses on the American taxpayer. Remember a good recession seems to weed out the dead wood. Maybe its time for a wholsale change of who is running Wall Street and this country.

2008 Sep 29 09:35 PM

[a believer]

The next 10 days will be very interesting, likely a worldwide market cataclysm such as we have not yet seen. It has been decreed to occur - to those who have been worshipping at the golden calf called The Market.

"Cursed is the ground because of you;
through painful toil you will eat of it
all the days of your life.

It will produce thorns and thistles for you,
and you will eat the plants of the field.

By the sweat of your brow
you will eat your food
until you return to the ground,
since from it you were taken;
for dust you are
and to dust you will return."

Genesis 3:17-18

Painful? Yes.

Necessary? Absolutely.

2008 Sep 29 09:45 PM

[[e-mail]]

Well All i have to say is a rotting system.

People let down . Made poorer.

Who is responsible. Those who present the balance sheet of banks, companies. Those who make it. Those Audit firms which certify them
are to be crucified first.

People are cheated by these Audit firms and controller and regulators
of stocks which allow theses kind of statements without checking the fundamentals.

God save this universe..

2008 Sep 29 10:30 PM