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Thanks for writing this; it's been bothering me for sometime now. Commonly, the arguments are Wall Street "doesn't create value," "merely moves money from A to

Thanks for writing this; it's been bothering me for sometime now. Commonly, the arguments are Wall Street "doesn't create value," "merely moves money from A to B," or "just exists to extract wealth." Wall Street produces pricing information. Wall Street produces this pricing information by moving money in markets from A to B, and extracting some money as payment. All businesses exist to extract money from somewhere! Good pricing information is extremely valuable. Bad pricing information is devastating. We just had a crisis caused by bad pricing information that had multiple origins, including Wall Street. However, the majority of the information produced by Wall Street is still good. Wall Street gets the brunt of the animosity because Wall Streeters make a lot of money. Furthermore, there is a severe asymmetry between positive and negative perceptions. When markets are well-functioning, their success is easily obscured; When markets are poorly functioning, their failure is center-stage. Before someone accuses me of conflating Wall Street with markets in general, I would like to counter that Wall Streeters are the maintenance men of markets. Some of those out-sized returns on short-term trading operations help pay for the fundamental research that helps produce good pricing information.

euroclydon 16y ago
Oh Please! Wasn't it the repeal of the Glass-Steagall Act which allowed these Wall Street Firms to simultaneously act as hedge funds and as you would put it, purveyors of "good pricing information?" Faced with the choice between making a few dollars providing pricing information, or manipulating that information (and sometimes the markets themselves) in order to make big-time money, they chose the latter.
- hga 16y ago
  No. Glass-Steagall prevented bank holding companies from holding other financial companies ... and I'm not aware of many of the former causing large problems (Citicorp, yes, but that three time loser should have been put down a long time ago). Of course many bank holding companies that were holding subprime toxic instruments as capital got slagged, but that's a very different problem. In fact, if what you wished were true, the rescues of the surviving investment banks, American Express, CIT Group (big middle market financing company) and General Motors Acceptance Corporation would have been impossible (or at least would have had to proceed differently). The government's solution was for them to become bank holding companies. Two investment banks, Bear Sterns and Merrill Lynch, were rescued by having bank holding companies buy them (JPMorgan Chase and Bank of America, the latter in the end at virtual gunpoint).
mcantelon 16y ago
Markets can create pricing on their own. As you say, bad pricing is devastating and Wall Street played a huge part in the bad pricing that created the crisis we're still in. They are hated because they take more than the value they add merits.
dasil003 16y ago
You're right that Wall Street serves a valuable function. The reason for all the animosity is because they did a piss poor fucking job of it and then used their influence at the highest levels to convince the government that a bailout was necessary, enriching themselves instead of taking their lumps. In 1929 wall street men were jumping out windows. In 2008 they were jumping out planes with golden parachutes paid for by the taxpayers while vast swaths of America were losing their homes and jobs. Bottom line is, Wall Street fucked up and they should have taken their lumps for it. That doesn't mean everyone on Wall Street is to blame, but it means that generally yes, Wall Street does deserve our scorn (as well as congress).
- hugh3 16y ago
  Wall Street has already taken their lumps. I'd like to see feel-good government policy take its lumps now. Specifically, the kind of policies that encouraged and/or forced banks to make loans to uncreditworthy individuals. Any time you hear a politician shitting on a bank, it's because they're trying to distract from the role the policies they advocated had in all this.
notahacker 16y ago
Problem is that these institutions make the largest profits when they produce bad pricing information in the form of complex overvalued derivatives poorly understood by those rating and buying them. It's also possible to accept that providing prices, liquidity and investment is a positive contribution to society whilst still thinking that this contribution is massively overvalued when it comes to pay packets, lobbying power and protection from the results of their own errors.

euroclydon 16y ago

Oh Please! Wasn't it the repeal of the Glass-Steagall Act which allowed these Wall Street Firms to simultaneously act as hedge funds and as you would put it, purveyors of "good pricing information?" Faced with the choice between making a few dollars providing pricing information, or manipulating that information (and sometimes the markets themselves) in order to make big-time money, they chose the latter.

hga 16y ago
No. Glass-Steagall prevented bank holding companies from holding other financial companies ... and I'm not aware of many of the former causing large problems (Citicorp, yes, but that three time loser should have been put down a long time ago). Of course many bank holding companies that were holding subprime toxic instruments as capital got slagged, but that's a very different problem. In fact, if what you wished were true, the rescues of the surviving investment banks, American Express, CIT Group (big middle market financing company) and General Motors Acceptance Corporation would have been impossible (or at least would have had to proceed differently). The government's solution was for them to become bank holding companies. Two investment banks, Bear Sterns and Merrill Lynch, were rescued by having bank holding companies buy them (JPMorgan Chase and Bank of America, the latter in the end at virtual gunpoint).

mcantelon 16y ago

Markets can create pricing on their own. As you say, bad pricing is devastating and Wall Street played a huge part in the bad pricing that created the crisis we're still in. They are hated because they take more than the value they add merits.

dasil003 16y ago

You're right that Wall Street serves a valuable function. The reason for all the animosity is because they did a piss poor fucking job of it and then used their influence at the highest levels to convince the government that a bailout was necessary, enriching themselves instead of taking their lumps. In 1929 wall street men were jumping out windows. In 2008 they were jumping out planes with golden parachutes paid for by the taxpayers while vast swaths of America were losing their homes and jobs. Bottom line is, Wall Street fucked up and they should have taken their lumps for it. That doesn't mean everyone on Wall Street is to blame, but it means that generally yes, Wall Street does deserve our scorn (as well as congress).

hugh3 16y ago
Wall Street has already taken their lumps. I'd like to see feel-good government policy take its lumps now. Specifically, the kind of policies that encouraged and/or forced banks to make loans to uncreditworthy individuals. Any time you hear a politician shitting on a bank, it's because they're trying to distract from the role the policies they advocated had in all this.

notahacker 16y ago

Problem is that these institutions make the largest profits when they produce bad pricing information in the form of complex overvalued derivatives poorly understood by those rating and buying them. It's also possible to accept that providing prices, liquidity and investment is a positive contribution to society whilst still thinking that this contribution is massively overvalued when it comes to pay packets, lobbying power and protection from the results of their own errors.