This article originally appeared on the Daily Ticker site of Yahoo! Finance in 2009.
WALL ST. DOING LESS AND LESS, SAYS JOHN CASSIDY
According to journalist and author John Cassidy, Wall Street banks are supposed to act “like a power utility… Except they provide money rather than power.”
But what happens when the power utility, instead of focusing on how best to manage and distribute power, decides to focus on using customer funds to make a quick buck?
The answer, as Cassidy explains in his recent New Yorker article, is a financial system pushed to the brink of collapse.
As he explains to Aaron in the accompanying video, Wall Street – at its best – serves an important and necessary purpose: to raise capital for businesses, which in turn fuels the economy.
The problem is, investment banking doesn’t seem to be the focus anymore. Instead, the banks engage in a socially worthless pursuit of profits, involving huge amounts of risk to everyone – except the actual players of the game.
As Cassidy writes in the New Yorker, the banks have “turned themselves from businesses whose profits rose and fell with the capital-raising needs of their clients into immense trading houses whose fortunes depend on their ability to exploit day-to-day movements in the markets.”
And the problem is that, even after bringing about an almost-collapse of our entire financial system, and (you may have heard of this) requiring billions of taxpayer dollars simply to continue existing, not much has changed.
Consider his finding that “in the first 9 months of this year, sales and trading accounted for 36% of Morgan Stanley’s revenues and a much higher proportion of profits.” The example is even more dramatic in the case of Goldman Sachs – the envy of all Wall Street – where, as Cassidy writes, “trading accounted for 63% of its revenue and corporate finance just 13%” between July and September.
In short, bankers “have done very well for themselves,” he says, but “not very much for the rest of the country.”
Cassidy is not anti-Wall Street. He acknowledges the importance of raising capital to fund businesses. But he maintains that there is an inherent problem with a system that gives condition-free public dollars to an entity that not does nothing in return and creates very little societal value.
At the very least, he says, our government should have “insisted on harsher terms” in bailing out these firms. If we had taken a bigger stake in Goldman Sachs, for instance, our tax dollars would have seen an acceptable return.
Instead, however, we continue to privatize the gains and socialize the losses – while Wall Street and its citizens continue to take as much as We the People will give.