Seeking Alpha

Most of what Wall Street does is socially worthless, so what good is it really, John Cassidy...

Most of what Wall Street does is socially worthless, so what good is it really, John Cassidy writes. "Big banks are forever trying to invent new financial products that they can sell but that their competitors, at least for the moment, cannot," he says. Most of these "innovations... serve little purpose or... blew up and caused a lot of collateral damage."
Comments (47)
  • Long Value
    , contributor
    Comments (229) | Send Message
     
    This guy has no financial experience and has written for liberal organizations seemingly since he graduated from college. I wouldn't really expect him to have any different of a viewpoint.

     

    What are you going to do if there is no Wall St.? Go back to a barter system for stocks, or maybe just eliminate the market altogether since it's just Wall st. trying to screw you. Hope you don't want a mortgage, cause that's not happening without Wall st. either, pay cash up front for your house. No credit cards either, Wall St. securitizes your debts, so cash for that too. Companies can no longer grow or hire people cause they can't get debt financing. etc., etc.

     

    If anyone reads this I'm sure it will be thumbs downed, but whatever, it's the truth.
    22 Nov 2010, 06:24 PM Reply Like
  • D. McHattie
    , contributor
    Comments (1823) | Send Message
     
    A certain amount of banking can be useful. But there are limits.

     

    We have so obviously exceeded those limits. If the AIG bailout didn't show you that then you are either blind, stupid, corrupt or some combination of the 3.
    22 Nov 2010, 06:54 PM Reply Like
  • D_Virginia
    , contributor
    Comments (2280) | Send Message
     
    Mr. Barton, my deepest regret is that I have but one thumbs down to give...
    22 Nov 2010, 06:58 PM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    Bullshit.

     

    20% down from the purchaser of the mortgage and a bank that holds the loan for life with a non-usurious interest rate. It's a simple formula; however, con-artists, gamblers, and casinos don't like it.

     

    Credit cards? We would all be better off without them.

     

    Your sordid siren song of crony capitalism supported by taxpayer's money and jobs and the future of the nation outsourced to foreign countries is now heard for the screeching of the Harpies that it is.
    22 Nov 2010, 09:22 PM Reply Like
  • greenzulu
    , contributor
    Comments (217) | Send Message
     
    Innovation can be a powerful force for good across most human activities. Economic innovation and it's subset, financial innovation, are no different. Innovation is a neutral term, in and of itself.

     

    Unregulated innovation -- innovation across all disciplines -- that has society-wide effects can be very bad. No one minds you blowing yourself up experimenting in your basement, but major financial institutions that are experimenting with the wealth of a nation need supervision.

     

    Farming innovation can be bad -- what kind of genetic experiments do you want to eat? All industrial, commercial, medical, and social innovation requires informed societal regulation, period.

     

    Economic globalization, assisted by computing and technological innovation have created greater financial instability within national economies, and the domestic organizations that were charged with regulating were inadequate to the task.

     

    Fin. Reg has to catch up with with the force potential that globalization and the acceleration of information flow have created.
    It will take time to learn to regulate and control. There's no guarantee that we will; it wouldn't be the first time in recent centuries that economic disruptions led to war.
    22 Nov 2010, 10:17 PM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    tisk, tisk...you blew it on that analysis Nathan...crash and burn baby.

     

    Oh, and compared to the outright thievery,money harvesting and fleecing operations of these "banks" these days...well, yeah an old "barter system" would be an improvement.
    22 Nov 2010, 10:35 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    Nathan, thumbs down are the hallmark of a good comment.

     

    Nice job.

     

    As for the rest of you

     

    What a load of self righteous twaddle

     

    It is clear that none of you have ever raised any capital to start or expand a business, that you do not understand securitization, cannot comprehend the benefits of efficient, frictionless capital markets. Have never benfited from any of the investment products that now enable individuals to cheaply hedge, diversify and participate in an amazing array of assets.

     

    The capital markets and Wall Street are a reason why the US leads the world in the creation of new businesses.

     

    Don't blame Wall Street if you have made stupid choices in your investments or cannot balance a check book

     

    What a lot of soft minded, populist drivel that so many of you spout to each other. Did you get all your financia knowledge from an Oliver Stone movie?

     

    "Wall Street" and its benfits is what Dubai, Hong Kong/Shanghai, Bombay are desperately trying to emulate. Go there and check it out.

     

    Get educated. At least read - the Ascent of Money, Against the Gods, Papermoney, Supermoney, The Money Game etc. It will help you not be so stupid.

     

    E
    23 Nov 2010, 01:11 AM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    I see quasi-religion in your rebuttal, and a little too much energy.

     

    If we are so clueless why not leave our comments lie?

     

    If there were so much greatness in Wall Street and Washington and so much "capital formation" and "lubrication" and "array of assets" then we would not have needed one single bailout or FED intervention or theft of taxpayer money and rights.
    23 Nov 2010, 05:16 AM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    Sure ebby.

     

    Because those new to investing or new to SA or just less experienced might read your inane garbage or the crap deposited by some of the other usual suspects and study the ratings and not instantly figure out the obvious that the more ridiculous and extreme an author is the higher rated they become.

     

    The path of least resistance for many is to pile on and adopt a populist tone. Just insert "banksters" and "audit the fed" or some other useless bumper sticker and voila - you are a "Top 50 commenter". It is the mental equivallent of participating in a book burning or smashing windows on an intellectual kristallnacht.

     

    It is the duty of anyone with a brain to label this harmful nonsense for what it is; garbage - pure and simple.

     

    Here's the one thing you need to know.

     

    "Negative thumbs from the SA crowd are the best contra-indicator that you can find. Period".

     

    E
    23 Nov 2010, 07:57 AM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    God...let's just hope they read our "inane garbage" prior to reading your wealth destroying, wrongly assumptive, arrogant rants. They might have a fighting chance if they do.

     

    Let us SA'ers (who are ALL wrong in your jaded state) know when your Bernanke knee pads wear out Econflop, (it has to be soon at your rate) and we'll all chip in and pity-buy you a new set.
    23 Nov 2010, 09:39 AM Reply Like
  • Long Value
    , contributor
    Comments (229) | Send Message
     
    MarketGuy, I respectfully disagree. That was probably the finest piece of "analysis" I've done on this site...see EconDocs comment, it is a more elaborate extension of my comment. If investment banking, securitization, hedging, etc. did not exist, the US would not be where it is today, both in a good and a bad way. Certain individuals overstepped their bounds as to what was proper risk taking and capital allocation and yes, everyone has had to pay for that, but this continual blame game of it only being the fault of these bankers just shows the general lack of knowledge that the public has to the function of banking in a productive society. To address other comments here, I'm talking about investment and corporate banking; these enable much of the consumer banking side of the house to exist and function properly.

     

    Having previously worked in both securitization and banking, I realize the value of these systems to how the capital markets function and how your everyday life is kept functional by them. I don't expect everyone to understand this and by the number of thumbs down, it's obvious that it is generally not understood, but throwing out buzz terms and AIG, mortgage, "banksters", etc. just makes me that much more certain of my stance.
    23 Nov 2010, 09:57 AM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    I am going to be civil about it but I do not agree with you premise that Wall Street serves a valued purpose in the lives of most people. In my earlier comment I recognize the difference between Wall Street and Banking. Most of what Wall Street does has little to do with Banking. Sure securitizations allow for the secondary redeployment of capital but to what end. It certainly appears that the Banks with Wall Street type back offices and large Investment Banking operations failed risk management by any standard of measure. What exactly have they contributed that I would be missing if these Wall Street products did not exist?
    23 Nov 2010, 10:23 AM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    Nathan,

     

    Thanks for the reply. You make valid points in reference to the direction "banking" needs to take. As of recent decades, Sarbanes-Oxley, Glass-Steagall, as well as other accounting based regulations have been sidelined. This has created a blatant wealth rebalancing in favor of a few elite at the expense of many middle class taxpayers and their children. Total blame obviously can't rest with just the financial/banking industry, it must easily start with lawmakers (read: Congress), as well as the Treasury, SEC,and lest we forget, the very crooked Federal Reserve.
    23 Nov 2010, 10:33 AM Reply Like
  • Long Value
    , contributor
    Comments (229) | Send Message
     
    Well, Glass-Steagal was overturned several years ago, so that's not even a discussion. As for Sarbanes-Oxley, to say that it has been "sidelined" is both incorrect and uninformed. Have people violated the rule (read: are there fraudulent companies), of course, but the great majority of the corporate world follows the law. Banks and every other corporation take every accounting advantage allowed to them to paint themselves in the best light to investors. Does this sometimes paint a slanted picture, sure. But if you are unsure about the picture or don't understand the accounting, don't blame Wall St. for your ignorance, you probably should just let other people manage your money anyway.

     

    As for your comment on wealth rebalancing, you're going to have to provide some specific examples here because the guys that everyone blames for the real financial shenanigans of the past several years were generally selling these shenanigans to qualified institutional investors and getting paid to do so, the middle class is not involved. If you're talking about the stock market, maybe you should be following along with the professionals either by reading 13Fs or investing in a mutual fund, those guys have made plenty of money and I can assure you that David Einhorn and Steven Cohen are not getting rich at you expense, they don't care what you are doing, follow along with them for the ride or beat them to the punch and maybe you can go along for the ride.

     

    I'm sure this will get plenty of thumbs downs as well if read because most SA readers think the market is a rigged casino, but whatever.
    23 Nov 2010, 11:03 AM Reply Like
  • D_Virginia
    , contributor
    Comments (2280) | Send Message
     
    > generally selling these shenanigans to qualified institutional
    > investors and getting paid to do so, the middle class is not
    > involved.

     

    Many of those "qualified" (and I use that term extremely loosely) institutional investors were performing said shenanigans with money they were managing in 401(k) and pension funds, most of which came from middle class participants.

     

    But the already-wealthy fund managers still got paid millions.

     

    So, just to spell it out for you, funds from middle class workers ("wealth") got paid in fees and bonuses ("transferred") to Wall Street fund managers.

     

    The value of the funds still held by middle class workers went down, but the compensation of the fund managers stayed the same or went up.

     

    Sure, no one is forcing the workers to invest in those funds. Although Wall Street and the government strongly advise them to. Maybe the workers could spend 40-100 hours/week researching investments to secure their own futures for themselves -- just like Wall Street investors do. Sadly, however, these workers already spend 40-100 hours/week doing real work at real jobs that make real contributions to the real economy that Wall Street feeds on -- one would think the least Wall Street could do is not blatantly screw them over.
    23 Nov 2010, 11:26 AM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    I'm pretty sure that most Americans feel very strongly that they were negatively impacted by the "shenanigans" perpetrated by Wall Street Firms.
    23 Nov 2010, 11:43 AM Reply Like
  • ebworthen
    , contributor
    Comments (2811) | Send Message
     
    I do believe in capitalism and free markets.

     

    I DO NOT believe in crony capitalism and socialized markets.

     

    Privatized gains with socialized losses do not represent free markets or capitalism.

     

    Book burning? Kristallnacht? Not me.

     

    The first thing the Nazi's did do was to make certain all personal firearms were confiscated from the Jews and everyone else. They also had an alliance with IBM using IBM's Hollerith punch card technology to track down any Jewish citizens in the "registry".

     

    www.ibmandtheholocaust.../

     

    Therefore, government/corporate collusion against citizens does tend to worry as well as anger me.
    23 Nov 2010, 03:37 PM Reply Like
  • D. McHattie
    , contributor
    Comments (1823) | Send Message
     
    Econdoc, you are what's known in internet terminology as a 'Troll'.

     

    From wikipedia:

     

    "In Internet slang, a troll is someone who posts inflammatory, extraneous, or off-topic messages in an online community, such as an online discussion forum, chat room, or blog, with the primary intent of provoking other users into a desired emotional response[1] or of otherwise disrupting normal on-topic discussion."

     

    I really can't fathom why people troll but it would probably make a great thesis for some psychology phd.
    23 Nov 2010, 04:29 PM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    Nathan,

     

    1) Glass-Steagall "not even a discussion" is exactly the point...it needs to be if we're debating cause and effect.

     

    2) As for Sarbanes-Oxley, let me expound further. You are correct in that many, (even a majority), likely adhere to the 11 titles of the Act, however this does not apply to the TBTF's and GSE's (see: Fannie, Freddie, AIG, GM, etc). Hence, major moral hazard and yes..."sidelined".

     

    3) You stated, quote: "But if you are unsure about the picture or don't understand the accounting, don't blame Wall St. for your ignorance, you probably should just let other people manage your money anyway."

     

    Please enlighten us all how YOU understand the accounting with "Mark to Make Believe". There is so much off-book crap with these large banks, I'm certain "they" don't even know what their worth. This isn't "ignorance" on the public's part...this is lack of disclosure on the bank's part.

     

    4) "...provide examples of wealth rebalancing"? "follow professional institutional investors"?

     

    With all seriousness, you must be kidding me. Are you truly that jaded and closed out from what's happening with wealth redistribution in this country? Have you seen the record unemployment? The record food stamps? record welfare? record underemployment? Record foreclosures?
    On the flip side, record trading profits from big "banks", record bonus pools, Federal Reserve POMO debt monetizing "directly" into the hands of primary dealers (read: TBTF's)?
    As for "institutional investors", I deem them more appropriately as "wealth harvesters". One day of watching these snake oil salesmen on any of the MSM's is enough to underscore that point.
    23 Nov 2010, 10:23 PM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    "I'm sure this will get plenty of thumbs downs as well if read because most SA readers think the market is a rigged casino, but whatever."

     

    whoopsie...

     

    www.foxbusiness.com/ma.../
    23 Nov 2010, 10:43 PM Reply Like
  • Long Value
    , contributor
    Comments (229) | Send Message
     
    Your posted article has to do with consumer mortgage malpractice at failed consumer banks. Not sure how this is relevant to my comments that are primarily focused on investment banking and with the comment you quoted, the public equity markets, specifically.
    24 Nov 2010, 12:14 AM Reply Like
  • Long Value
    , contributor
    Comments (229) | Send Message
     
    MarketGuy,

     

    1) I think you are confusing causation with time correlation. The mere separation of a commercial/consumer bank and an investment bank was not the cause of the financial mess we are in right now. Look at AIG FP. They don't have a bank (commercial/consumer or investment), yet they managed to write billions of CDS that was one of the largest slices of the bailout pie. GS also did not have a banking arm, until they took one upon themselves by force of the government. Yet they were able to package mortgages, buy and sell CDS, etc. Glass-Steagall is low on the list of reasons for the current mess we are in, IMO.

     

    2&3) My personal belief is that if you can't understand the accounting and you can't figure out where the money is going and what is happening, you probably shouldn't invest there. For people with strong accounting skills but no background specifically looking at banks, this would likely eliminate most of the names you mentioned from that lexicon. For many investors out there who have little to no knowledge of how to read an SEC document or of accounting, this would eliminate investing in individual names with any sort of thesis other than "it's going to up". Hence, back to my original argument that you should just throw that money into a mutual fund if you fall in this group. If you don't like a certain fund, don't invest in it, there are plenty of good funds out there that are worthy of your dollars, do your research before buying one.

     

    4) Yes, I probably am that jaded. Sorry.

     

    Just as an FYI, I'm not responding to anymore comments on this thread, I may read them if in front of a computer in the next few days.

     

    C'mon thumbs up!
    24 Nov 2010, 12:27 AM Reply Like
  • MarketGuy
    , contributor
    Comments (3983) | Send Message
     
    Nathan, sorry, I should have pointed out that was based upon your original comments regarding Wall Street where you said:

     

    "Hope you don't want a mortgage, cause that's not happening without Wall st. either, pay cash up front for your house."
    24 Nov 2010, 04:21 AM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    The EARLIER financial products like mortgages were (mostly) good. Ditto for credit cards, which we had before securitization.

     

    But the most recent ones (like CDOs) weren't. "Financialization" ran amok, wasting resources (including human resources) that could have been put to far better use.
    24 Nov 2010, 09:50 AM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    "The Nazi's ... had an alliance with IBM using IBM's Hollerith punch card technology to track down any Jewish citizens in the "registry".

     

    Shame on IBM.
    24 Nov 2010, 09:54 AM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    Finally, at least some civil and criminal actions are being started. About time. No biggies or TBTF, but maybe somewhere out there in the future that too may happen.
    25 Nov 2010, 11:12 PM Reply Like
  • D_Virginia
    , contributor
    Comments (2280) | Send Message
     
    Certainly you can't eliminate "banking", nor "the stock market" in their entirety -- but let's be honest, those things are a somewhat small part of what Wall Street does.

     

    "Most" of what Wall Street does, at least in terms of man-hours spent and profits reaped, is create unnecessarily complex financial instruments which are designed to generate fees for their designers, and which occasionally have unintended side effects that actually benefit society.

     

    And don't even get me started on the market manipulation, self-dealing, and other atrocities often committed with these instruments. Clearly there's no value created there.

     

    Folks, we must occasionally remind ourselves that creating "profit" is not always the same thing as creating "value" -- even though Wall Street would like to make you think that it is.
    22 Nov 2010, 06:55 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (5219) | Send Message
     
    The article raises a question I have long since answered for myself.

     

    Much of what Wall Street does serves no useful social purpose. CDS, CDOs of synthetic ABS stuffed with adverse selected CDS and sold as investments, CDO^2, stuffed with an endless recycled mass of garbage, HFT, naked short-selling, rumor-mongering, insider trading, commodity manipulation, etc.

     

    The proper function of the financial services industry is to serve as intermediaries between those who work, save and invest, and those who need access to capital for constructive enterprises that create goods or service that are useful to society.

     

    Walll Street has it exactly backward, they prey on those who work, save and invest, in order to divert the flow of capital to useless specuatlion and manipulation.

     

    Its a pity Washington is still supporting and permitting this parasitic evil of financialism. It's like they actually believe that if they can just somehow make things totally easy and unregulated for this band of parasitic speculators and manipulators that they will somehow create prosperity and share it with Main St. It doesn't work that way.
    22 Nov 2010, 06:56 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    Tom,
    Good summary comment. Yes, Wall Street does have some usefulness and societal benefit and valued added (best guess maybe 20-25% of what they do), but a hugh part of what they do is essentially worthless, self-serving, wealth extraction for themselves and tiny segment of wealthiest elites (best guess the other 75-80% of what they do).

     

    It certainly could be fixed, but the likelyhood of that is virtually zero when all decisions affecting the system are made by those who benefit directly and the most from it. Too bad, but hell just might freeze over before the changes that should be made are ever allowed to be made.
    22 Nov 2010, 09:16 PM Reply Like
  • Agbug
    , contributor
    Comments (1085) | Send Message
     
    Excellent summary of what passes for capitilsm, Tom. At least if my silver stash is stolen I can call it a crime. When Wall Street does it, they're called professionals.
    22 Nov 2010, 09:35 PM Reply Like
  • 1980XLS
    , contributor
    Comments (3314) | Send Message
     
    Markets may be slow at times but eventually they reveal the truth.
    That's why manufacturing and industrial stocks have been significantly
    outperforming financial stocks.

     

    Would likely be even more so without Gov't intervention, most of which is Gov't for the banksters, by politicians owned and paid for by the banksters.

     

    Apple and Procter & Gamble make products, Banksters (at least in their current form) Gamble and conjour schemes.
    22 Nov 2010, 07:17 PM Reply Like
  • stmcca02
    , contributor
    Comments (195) | Send Message
     
    yes --- most of the wall street products are socially worthless..

     

    Just keep credit swaps, stock and options... the rest is mumbo jumbo...

     

    We live in a bizarre world.

     

    Where worthless things are worth more than 200,000 starving cholera infected haitians.
    22 Nov 2010, 07:23 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    The article is a hit job on large banks and Wall Street which by the way are 2 different functions but then most people don't know the difference. Anyways there is some really stupid things that occur on Wall Street but those are the exception and by the way Wall Street enables the US to issue all the crazy debt we are currently racking up so we can pay everyone their entitlement checks and eventually a ton of health care payments. Anyways there are lots of products on Wall Street people never hear about.

     

    But the larger point is that we live in a $16 Trillion sophisticated economy with many players all having various financial needs. They are asking Wall Street for these products because they want to solve issues on their balance sheet or P&L. Does anyone think that the CFO of a major company is putty in the hands of some Wall Street guy wearing a bowtie? These products are not needed in 3rd world economies so if we want to go back to a pre-industrial society I am sure we can get rid of much of Wall Street and downsize the economy. But we cannot have it both ways. For example, a large pension fund with obligations for the next 30 years needs investments to offset those obligations and they turn to Wall Street for those solutions. Should we not have those solutions and let the pension fund swing in the wind?

     

    The spectacular debacle with housing has one fundamental fact at its root and that is that inappropriate loans were made to consumers by real estate and mortgage companies in the local market and that was where the consumer got screwed first. They got screwed by their local citizens on Main Street who took in 100's of millions in real estate and mortgage commissions on those sales. "Isn't this a great house? I know where I can get you a cheap loan and you know house prices never go down. And they are not making any more dirt so you better buy now." How Wall Street packaged these bad loans up into various instruments did not change the underlying credit. People at the local level need to look in the mirror.

     

    Congress encouraged this mess by trying to get everyone to lower their credit standards because they felt that banks were not loaning money to poor people. Check out the CRA and congressional testimony trashing banks for not loaning money to poor people. Duh! Poor people don't pay the money back. We should not use the banking system to make transfer payments as it is a disaster. Congress also developed the secondary mortgage market to enable more capital to flow into housing by banks moving the mortgages off their Balance Sheet and thereby do more loans. The banks copied this model and of course developed CDO's, etc.

     

    If all the credit extended in this past decade was provided to healthy borrowers we would not be having this conversation and Wall Street could package these loans 6 ways from Sunday and it would not matter. Bad credit will crush any economic model including what we have here in the US. Simplifying our financial system does not relieve us from poor underwriting.

     

    We need to understand the issues much better so we lay blame precisely where it belongs and there are parties in Washington DC and at the local level that don't want to take responsibility. Wall Street has their issues but they did not dance alone.
    22 Nov 2010, 07:36 PM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    Let us not for the moment confuse Wall Street with Banking. I know that some large banks have investment banking arms. Most of the nearly 8000 banks do not. So, when it is said that most of what Wall Street does has little value other than mystifying unsuspecting nonfinancial types into believing that they can convert lead into gold, I have to agree.
    When you can no longer make any real return doing what you are chartered to do you have to turn somewhere else or close up shop. Since your considerable paycheck is dependent upon doing something you dream up yet another variation on the old walnut shell game and go after another crop of unsuspecting noodle heads.
    Having set in the room listening to umpteen presentations on interest rate swaps given by "experts" I can assure you that they knew less about how this shell game worked than I did and I never did feel that I understood. These "experts" knew one thing, if they sold the product how much their commission would be and nothing more. Their client for the most part knew even less because they never fully understood how much risk was involved in buying the product and how much it really cost them. Often it was sold as a not cost option. Who sells anything of value for nothing?
    22 Nov 2010, 07:42 PM Reply Like
  • Hendershott
    , contributor
    Comments (1498) | Send Message
     
    There are a lot of good things that Wall Street does, things like responsible portfolio management, raising cspitasl for American corporations and so on. Unfortunately those things aren't hugely profitable. On thing Wall Street and the big banks are good at is ramping up things that are profitable. Ramping them up, leveraging them up until they explode. Debt securitization and swaps being prime examples. Lending by itself isn't that profitable, but if it can be securitized and highly leveraged then it becomes very profitable, until it collapses. HFT trading by itself isn't very profitable either, unless a lot of leverage is used. It hasn't collapsed yet. Social value? Not part of the calculation. God's work, as Lloyd put it. Social value isn't a B-school topic. It sounds a lot like socialism.
    22 Nov 2010, 09:00 PM Reply Like
  • Wyatt Junker
    , contributor
    Comments (4503) | Send Message
     
    "Most of what Wall Street does is socially worthless.."

     

    Most of what government does is socially worthless. No, strike that. Most of what government does is socially damaging, enslaving. Should we eliminate government? Large parts of it, yes. But I like the nuclear subs. Can we keep those? They're totally cool and provide a function as per the Constitution.

     

    If I had to choose, I'd prefer Wall Street any day of the week, month or year when compared to the stifling, suffocating derangement we call 'government'. At least Wall Street still believes in the individual and wealth accretion.

     

    At least with Wall Street you can still say 'caveat emptor' on the other side of the trade. In government, you only get the mailed fist, and that on both sides.

     

    Some say Wall Street runs a casino. I like casinos. Wall Street brings some pretty cool shit to market too. Marketable inventions and innovations that would have never happened without pooling capital. Please people, don't blame fire for being hot. That's what it does.

     

    Sure, I'll get the thumbs down. But you know what? I just don't give a shit anymore.
    22 Nov 2010, 09:17 PM Reply Like
  • kaz7
    , contributor
    Comment (1) | Send Message
     
    No one is blaming fire for being hot. But it is totally legitimate to blame the people who started the fire, fanned the fire, and waved the fire around until it burned down the house.
    22 Nov 2010, 10:30 PM Reply Like
  • neutrinoman
    , contributor
    Comments (700) | Send Message
     
    The New Yorker writer (Cassidy) is pretty ignorant and seems to know next to nothing about economics. TNY does have some other writers who are pretty decent and know something about economics.

     

    Cassidy doesn't understand WHY we have capital markets to begin with, so he doesn't understand what's gone wrong with them in the last 15 years -- at bottom, it's the Fed, stupid :) The system is now constantly awash in so much liquidity that people just keep looking for creative ways to use all that excess. The Fed has created a phony atmosphere of low-risk, paper pseudo-wealth ("wealth effect") that makes it superficially feel as if we have a lot of capital to play with, when in fact our savings rate is chronically low and real risk reappears through "blow-ups," rather than being properly discounted through orderly market processes. Short-term borrowing to fund long-term assets is now so common, people don't think about how strange and dangerous it is.

     

    (Ever wonder, why the explosion of CDS in the last decade? It's because we have phony interest rates that don't reflect real risks. People know this, so CDS have come to the fore as an alternative risk tool.)

     

    The legitimate purpose of banks, Wall Street, and all financial institutions, is to pool and allocate capital to productive purposes and not waste it. The Fed's policies have actively discouraged this for almost a generation and actively encourage malinvestment and misallocation. The financial mess we have now is the result.
    22 Nov 2010, 10:56 PM Reply Like
  • citizenleung
    , contributor
    Comments (236) | Send Message
     
    Perhaps the Fed created the environment, but there's something to be said for personal responsibility and decency. No one made people borrow more than they can afford. No one made WaMu and Countrywide approve loan applications without doing due diligence. No one made Moody's plaster AAA on pile after pile of garbage. No one made AIG bet that property values will never ever drop. No one made Bear Stearns lever up to the point that they were betting the entire company every day.

     

    Sure, Greenspan's policies were strange. However, the ultimately responsibility is on the plethora of bad actors teeming in the cesspool known as Wall Street.
    22 Nov 2010, 11:42 PM Reply Like
  • Fr33f0rm
    , contributor
    Comments (300) | Send Message
     
    Until it becomes legal to charge employees with negative commissions (not recommended) there will always be incentive for individual employees (traders) to take aggressive risks. Best case: Huge bonus and raise. Worst case: fired (not so bad if you can manage a few great years).

     

    Regulation is necessary because employees will always have lopsided rewards.
    24 Nov 2010, 01:03 AM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    WaMu, Countrywide, AIG were not traditional Wall Street players so smearing Wall Street with their bad behavior only takes away responsibility of those players at the main street level. Bear Stearns definitely was a Wall Street player and was stupid so they are out of business just like Lehman Bros.
    25 Nov 2010, 12:48 PM Reply Like
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    Actually, I think we need a few more innovative financial products in the trading arena to meet demand. Perhaps Mr. Cassidy should examine his own social worthiness and leave the rest of us alone.
    22 Nov 2010, 11:23 PM Reply Like
  • citizenleung
    , contributor
    Comments (236) | Send Message
     
    The financial sector went from less than 5% of the economy to more than 20% at its height. How can a country have such a large percentage of the economy based on buying and selling pieces of paper? At least the financial sector isn't as important to the United States as it was to Iceland and Ireland. Yikes!
    22 Nov 2010, 11:32 PM Reply Like
  • TomasViewPoint
    , contributor
    Comments (4845) | Send Message
     
    The answer is that we are a very wealthy country that is geographically spread and has very demanding consumers who want the best financial services when they want it. Poor people and poor countries don't need financial services as they are just scraping by and paying everything in cash or with barter. India and China are building up their FS sector as their wealth grows because they see the correlation between wealth and a strong FS sector. We are taking this for granted which is a big mistake.
    23 Nov 2010, 09:57 AM Reply Like
  • Fr33f0rm
    , contributor
    Comments (300) | Send Message
     
    Wall street has constructed a variety of "tools" that are highly specialized and useful in the context for which they were designed. Though Glass-Steagall is frowned upon by most investment-types, the spirit of it should be acknowledged as a good idea.

     

    Mandate that tools be used for what they are designed for. Futures are designed for hedging commodity-price risk, not gambling. Credit default swaps are designed as guarantees that, in the case of failure, that contracts will be insured. When these products are misused it should be as illegal as other types of insurance fraud.

     

    The issue was never whether products should exist (though some may disagree). The issue was that many products were misused, fraud was rampant, and accountability was non-existent.

     

    But for those that continue to say that the financial industry was providing valid investments to "institutional investors" and shouldn't concern themselves with the quality of the investment vehicles...I suggest that next time you go for a haircut...insist that the barber use a chainsaw...don't worry that it's not the "recommended" tool for the job.
    23 Nov 2010, 08:03 PM Reply Like
  • 7footMoose
    , contributor
    Comments (2266) | Send Message
     
    The difference between your haircut analogy and the Wall Street analogy is that only those on Wall Street who directly benefit from the use of their tools understand the risks whereas almost everyone knows the risks of using a chainsaw for a haircut.
    23 Nov 2010, 08:19 PM Reply Like
  • Fr33f0rm
    , contributor
    Comments (300) | Send Message
     
    Agreed, but it was a better visual than a more accurate analogy could conjure. :)
    24 Nov 2010, 12:56 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|