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Wall St Is a Predator's Playground. Keep It That Way

I'll bypass the irrelevant thesis of whether greed is good. But it's necessary. Why? Very simple, if you're not a greedy bastard, some other greedy bastards will take it from you. If we want to keep our financial industry remain competitive in our fledgling global tribal civilization, we'd better keep some of our brightest minds and most aggressive, greedy bastards on Wall St, and pay them cushy bonuses.

No, I'm not getting into the meaningless debate between elitism and populism. Both are clearly wrong, just like any ism put in practice in its fundamentalist form. The relevant debate is how to balance the two theoretical extremes.

I've personally witnessed the degeneration of Wall St over the past 15 years. As investment banks got taken over by commercial banks, Wall St has become increasingly bureaucratic and mediocre. To be sure, there're still plenty of hungry, brilliant people on Wall St. But they've been increasingly crowded out by the steady inflow of mediocre people, throughout the decades-long rapid expansion, whose goal in life is nothing more than keeping their jobs. Certain degree of bureaucracy is inevitable and indeed necessary as the size increases. But I wonder how many would like to justify their jobs under that pretense.

The more people I meet throughout the world, the more convinced I am that humans consist of two genetically different subspecies: explorers and survivors. The two groups could never connect to each other at the emotional level. Explorers can't understand how survivors could survive the boredom of constancy, while survivors can't understand why explorers would want to do all those crazy, senseless things. Regardless of gender, race, culture or any other convenience-based categorization, you either have the fire in your belly or you don't.

The old Wall St was dominated by explorers. They not only wanted to get rich and/or powerful, but they were also in it for the love of the game. Any idiot can get rich by sheer luck. But it takes a rare combination of intelligence, drive, exploratory spirit, discipline, and predatory instinct to make it and stay in the game.

Commercial banks, on the contrary, are by nature for survivors. They are stable, conservative, and boring -- and rightly so. As to insurers, how could AIG ever be allowed to trade derivatives in any scope beyond strictly hedging? My mind, boggled it is still, today.

Glass-Steagall was a pinnacle of wisdom in financial regulation, and the abandonment thereof was an equally momentous tragedy. Then the two subspecies co-mingled. Access to cheap capital from commercial banking gave explorers free reign. The fantastically vast and ever changing landscape of investment banking pushed survivors to make decisions beyond the capacity of their emotional comprehension. It's been, and still is, a marriage made in hell.

Note that I'm by no means passing a value or moral judgment on explorers vs survivors. Both are necessary and healthy for societal development. Each belongs to their separate worlds. Explorers need to be protected from themselves. Survivors should not be pushed beyond their comfort zone and glacial pace.

Limiting risk taking and exploration, or exploitation if you insist, in investment banking is sure to suffocate it. Asking commercial banking to chase growth is akin to asking them to commit suicide.

Predators, being at the top of the food chain, must remain elite and small in number. From a macroeconomic point of view, a financial industry that's more than 10% of GDP of a major economy is not sustainable, nor is it healthy. What caused this crisis is not TBTF banks; it's the TBTF financial industry, a mutant monster born from the ill-fated marriage between investment banking and commercial banking that became a societal cancer.

I've been advocating for re-enacting Glass-Streagall since early 09. Volcker Plan is a step in the right direction. But it's not enough.


Disclosure: None