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Wall Streeters are only human. If you want to fix Wall Street you have to design a system that works better, taking human nature into account. One big differenc
by T_S_ 16y ago
Wall Streeters are only human. If you want to fix Wall Street you have to design a system that works better, taking human nature into account. One big difference between Wall Street and startups is the heavily regulated nature of the financial industry. The public already has the control, but our government doesn't use it effectively.
I worked on Wall Street for many years before becoming an entrepreneur. My fingerprints were taken several times. No I wasn't being arrested, everybody's are taken--a holdover from the days of physical securities. I took 5 major exams over the years and many minor ones, in order to be permitted to do my job. Oh yes, the content of the exams had little to do the products I worked on, which were all invented only yesterday. Our company had offices set aside for regulators to use whenever they visited. The public never, ever heard or saw the results of those visits. Our P&L had internal and external auditors looking at it all the time. Only the internal guys were good, since it protected managers from rogue traders. Our capital was regulated, which capped our risk only in a very vague way. I could go on.
What did all this regulation accomplish? Nothing in the end. Why? Regulation pits bureaucrats against highly paid professionals. Some bureaucrats are highly motivated and intelligent (I know, I used to work with a few of them when they worked on Wall Street). But their bench is not deep and the stars show up only when there are investigations to lead and headlines to grab.
We need a system that pits the smart against the smart every day. It starts with opening up bank operations to public scrutiny. The balance sheet you and I have is open to creditors to inspect. The reverse positions, held by banks, should be visible to the public. Only then will privately employed bank analysts have a prayer of calling bulls__t in a timely manner. If you think this is some kind of socialist plot, think again. Even Friedman and Hayek knew that markets can't clear without adequate information. Where do you think all this volatility is coming from?
Will we get this kind of transparency from the new financial reform law? Afraid not. All we did was put the A-team of regulators in charge--but they will move on after a while.
- shantanubala 16y agoOddly enough, a video game quote (Deus Ex) sums it up quite well: "A system organized around the weakest qualities of individuals will produce these same qualities in its leaders." Replace "leaders" with "bankers" or whatever you'd like. Greed isn't always good.
- T_S_ 16y agoI agree to the extent that almost all regulation is aimed at the worst behavior of "evildoers", not the average bad behavior of "louts". Short of the worst behavior we all have "freedom", which starts to define what is acceptable, even though it shouldn't. Loutish behavior is best controlled by eliminating secrecy. Sunshine kills mildew. My argument is that bank positions are determined by potential louts, not so much by evildoers. But either type depends on nobody looking. Give us (literally you and me) the right data and they won't be able to operate the same way anymore.
- redrobot5050 16y agoOften, they will move on to a large firm once they (or the large firm) have spotted the most profitable, low-profile loophole in the regulation.
- T_S_ 16y agoIt's never that obvious. When a regulator is hired by the Street, it is usually because they have lots of industry knowledge and know all the other regulators. That alone is sufficient. It also makes the case for industry self-regulation easier to swallow (in the eyes of regulators).
- jbooth 16y agoWe don't need a system that pits the smart against the smart, we need a system that pits the smart against nature. I'm sick of zero-sum competing to leech a bigger share of money out of the system rather than giving it to investors or investees. Smart people should be creating things. Discover/fund a new market and get rich? Great! First one to see a big trend and have the guts to bet against it, lining up market pricing? Good, I hope you get rich. But playing video games in order to nip the largest number of pennies off of actual investment is just a giant waste of time, talent and money.
- T_S_ 16y agoIdeally, the efficient allocation of capital is the smart against nature. However the nature of the current system injects too much noise into the markets, since trades and positions are generally secret, except as occasionally viewed by regulators or post-mortem as in the Madoff case.
- mmt 16y agoTLDR: The public never, ever heard or saw the results of those visits. It starts with opening up bank operations to public scrutiny. I wholeheartedly agree that if the prerequisite to the solution, if not the solution itself, is more "sunshine." We live in the Information Age, after all.