Don't Cry for Wall Street

Once upon a time the great minds of Wall Street were thinking as one. Faced with a financial crisis of immense proportions they massed their considerable intellectual firepower and came up with a plan.

Or better, they concocted a story. They decided that they would need to find a Savior. Pooling their considerable monetary and intellectual resources, they found the man who would lead them out of the wilderness: the junior senator from Illinois.

None of them would have considered hiring the junior senator for anything more than an entry-level position in their own august institutions. Yet, they convinced themselves that he would rescue them.

By the end of the Bush administration, Wall Street was on life support.

Whose fault was it? The best and the brightest on Wall Street decided that it was not their fault. They were too rich and too highly respected to have made the kinds of mistakes that would have brought the country to the brink of financial Armageddon.

 Since all of their best friends were Democratic politicians and agency heads, they thought about it more deeply and concluded that none of them bore any real responsibility, either.  

And then, they had an epiphany. As a man Wall Street’s great minds had a flash of insight. The fault, dear friends, lay in the big bad Bush administration. After all, their liberal activist friends had been railing against the Bush administration since the Florida recount. It seems that they had been right.

If the Bush administration was at fault, Wall Street’s best knew how to solve the problem. They would support a candidate who was the antithesis of the big bad Bush administration.

Of course, they knew that Obama had some baggage. Twenty years with a wide-eyed bigot like Jeremiah Wright must count for something.

But, the great minds of Wall Street heard that Obama had renounced Jeremiah Wright. And the New York Times said he wasn't so bad after all. Given their sophisticated knowledge of human psychology, they knew that you could dismiss twenty years of your life and the teachings of your mentor with a flick of your magic wand.

Apparently, the great minds that had driven the financial system to the edge of oblivion still trusted their judgment. They got the right vibe from Obama, so they went all-in.

Alas, their love was not to be requited. As soon as he took office Obama started trashing the greedy fat cats of Wall Street. Coming from an ex-parishioner and mentee of Jeremiah Wright this could only be coded anti-Semitism.

Wall Streeters started feeling queasy about Obama.

Worst yet, he started funneling stimulus funds to his union supporters. And then he rallied Congressional Democrats to pass regulatory reforms that would make it much more difficult for Wall Street to make money.

Whoever could have imagined that good liberal Democrats, the kind you went to parties with, could have believed that the solution to Wall Street greed was increased regulation?

The writing was on the wall. Yet, the street’s best and brightest had forgotten how to read. By the time they had figured it all out, it was too late.

The markets rallied and revived, but Wall Street did not do so well. Neither did the American economy.

The age of Obama had produced anemic economic growth and seemingly chronic high unemployment.

Who was fault for this bad economic performance? To listen to their favorite candidate, they were.

By late 2010 Democrats suffered one of the worst electoral repudiations in history.

In early 2011, a newly energized Obama stepped to the Congressional podium to outline his plan for saving the economy.

The details are not worth remembering. The rhetoric is. Obama addressed Congress to attack it, to tell it what it had to do, to make it the fall guy for all of his administration’s failures.

No sentient individual could remember a president giving a more in-your-face a speech to a co-equal branch of government.

And then the wheels started coming off. Obama’s union supporters were horrified that the new governor of Wisconsin would try to fulfill his campaign promises. They decided to fight democracy with thuggery and violent rhetoric. They occupied the state house in Madison, Wisconsin.

Madison set the example. Taking their cues from Obama’s  confrontational rhetoric leftist activists organized a movement called Occupy Wall Street.

Admittedly, many of the naïve youth camped out in what James Taranto has aptly called Obamavilles don’t know what they are doing. For their edification I would point out that they are playing parts in a script crafted by none other than Barack Obama.

The new regulatory environment is attacking Wall Street profits. The Occupy movement is attacking Wall Street's reputation. 

Wall Street is in trouble. Big trouble. And New York City and State are in bigger trouble.

How big? The New York Times lays it out this morning in an article that seems to be tolling a death knell for Wall Street.

Kevin Roose explains: “Being young on Wall Street once meant having it all: style, smarts and too much money to spend wisely. Now, twenty-somethings in the finance industry are losing both cash and cachet.

“Three years after the global financial crisis nearly brought Wall Street firms to the brink, the nation’s largest banks are again struggling. As profits wane, layoffs have claimed thousands of jobs and those still employed have watched their compensation shrink. These problems are set against the morale-crushing backdrop of the Occupy Wall Street movement, which has made a villain of a once-lionized industry.”

It’s not just the lost jobs, the lower bonuses, the shortened careers. There’s the loss of status, the loss of respect, the loss of reputation, and the loss of morale.

When the president of the United States casts you as the villain, when he stigmatizes and scapegoats you, your reputation will be damaged. What was once a badge of honor has now become a mark of shame.

Roose writes: “Wall Street’s social scene has also changed, thanks to Occupy Wall Street and the fear of reproach from industry outsiders. Today’s young bankers no longer brag about their jobs, especially in public. One twenty-something Goldman Sachs employee, who spoke on the condition of anonymity because he was not allowed to speak on the record, said he now told new acquaintances he worked at a consulting firm.”

Falling profits are one thing. Markets come back and people go back to making money. And, some people do very well in falling markets. Besides, Roose reports that the burden of falling profits is mostly affecting the young. The great minds who created the problem are doing alright, monetarily.

If the mood is as bleak as it seems, contrarian investment theory would suggest that the markets are about to rally.

Recovering your lost reputation is quite something else. Your status and standing, the respect you command, does not show up on a balance sheet. It exists within the public mind. Changing the public mind is a long arduous slog.

No one is going to feel sorry for the bankers and traders who made it their business to flash cash around town. Arrogance is never attractive.

Besides, they were stewards of the financial system when it nearly went bust.

Rather than accept responsibility, they staked their money and reputation on an untested candidate without qualifications or experience, who had spent twenty years at the feet of an anti-Semitic pastor.

How could they have done it? Hubris explains some of. True love covers the rest.

Too proud to take responsibility for their own failures, blinded by love for the young man from Illinois, they abandoned reason and threw their weight behind the party of trial lawyers, labor unions, environmentalists, bureaucrats, regulators, and liberal activists.

Why did they think that this party was going to friend them?

No one feels sorry for Wall Street. They failed to run their businesses responsibly and they refused to take responsibility for their own failures. Worst yet, they believed that they could make it all go away by scapegoating the Bush administration.

Today, it looks like they compounded poor judgment with worse judgment. They should have stuck with compound interest.