Wall Street’s Continued Self Delusion
For highly-trained and well-compensated financial experts who routinely delve into the outer limits of stochastic calculus, Black Scholes and Finite Difference Method techniques of numerical options pricing, Wall Street does a lousy job of gauging public opinion.
Like most people who have to give self-evaluations and the old saw that “A lawyer who has himself for a client is a fool,” Wall Street and the broader financial services industry does not understand that it is considered part of the problem of financial inequality by the majority of Americans.
While they spend millions on public relations, and I was a beneficiary of those budgets for many years, Wall Street does not understand that the wealth gap, stagnant real wages, an incessant effort by established political parties to create a population in constant debt and financial insecurity going well into retirement, does not make them popular.
The recent poll by Bloomberg found that Americans increasingly distrust billionaires more than they are admired (53% to 31%), while only 31% consider corporate Wall Street executives as trustworthy and favorable. This is certainly no surprise after the 2008 recession, resulting housing crisis and most importantly, the fact that no Wall Street executives were prosecuted for their mismanagement and potential frauds. Oddly, if Bush or Obama had prosecuted these executives, the popular rating of Wall Street would be much higher. Justice has a way of doing that.
Instead, Wall Street has tried half-heartedly to explain itself, but these efforts have misfired. The most recent example happened when JPMorgan Chase & Co. CEO Jamie Dimon railed against media coverage of the firm’s bond trading results. In the call, he said reporters should focus on the major issues facing the nation faces rather than solely on bond trading profits. Dimon has a valid point, but borrowing the famous line from Tonto, Dimon speaks with a forked tongue.
If JPMorgan Chase, as one of the nation’s largest political contributors (it contributed 67% to Republicans and 33% to Democrats in 2016, according to Open Secrets), thinks the nation’s political priorities (the need for infrastructure, tax reform and education) are upside down, Dimon should become more reflective and consider that the proposals for tax and health care reform and beating back pro-investor regulations will largely benefit Wall Street (i.e. the top 2%) more than the average American.
This disconnect between the wealthy and the masses are age old. Ask the Romanoff’s, Napoleon III, King Pōmare V of Tahiti, King Carlos I of Portugal, King Farouk I of Egypt, and the 142 other monarchies that have been abolished in the 20th and 21st Centuries.
And while the U.S. is certainly not a monarchy, it’s clear the direct link between the electorate and their elected representatives has short circuited. And this has been aggravated by the financial industry’s myopic efforts to correct the situation. Many of these efforts are well-intentioned.
Take the recent effort by Mercer to address the global retirement savings crisis which it called “one of the greatest crises of our time, for which there is no silver bullet.” Mercer deserves a lot of credit for even addressing the retirement crisis, something the retirement-insurance industry has never addressed head-on. But in their paper, “Bold Ideas for Mending the Long Term Savings Gap,” Mercer addresses ways to improve the $70 trillion global retirement savings deficit, but avoids the political economy of retirement, including the 30-year-old debacle of wage stagnation and hence, wealth creation.
Instead, Mercer takes the safe corporate route of addressing the “long term savings gap” that exists due longer life spans, combined with lower birth rates; lack of easy access to pensions and savings products; the inability of individuals to assume greater financial responsibility in retirement; and gender imbalances in long-term-savings. To Mercer’s credit, the paper does address the lack of trust in financial markets and products, but it falls short of advocating for a political and regulatory solution.
And this is the problem Wall Street faces as it seeks to balance its own interests, including that of the U.S. financial system and neo-liberal political policies against current realities that are decidedly anti-average American.
A corporation, like an entire industry or a person, cannot diagnose themselves. It’s unfortunate there are not more Wall Street CEO’s like Dimon, but not if they intentionally fail to diagnose the entire problem from the bottom-up, not the top-down, including their own central role in the crisis, the effort is futile.
This is how the Fed wrings its hands over stagnant wage gains, yet it cannot address how Alan Greenspan famously made the repeated decision during his 19-year tenure as Fed chairman that rising wages would contribute to inflation. Whether that was influenced by his affinity for the egocentric philosophy of Ayn Rand or real fed policy is debatable, but the end result is not. The reality is that political institutions and corporations do not like to discuss their own histories and how they contributed to past atrocities or current problems.
Income disparity, low wage growth, voter disenfranchisement, open distain for the masses in the form of health care coverage, combined with perverted priorities, such as the $1 trillion spend in Iraq and Afghanistan, the unaudited Pentagon, and the official $66 billion intelligence-surveillance budget in 2015 (plus billions more in secret), all contribute to Dimon’s valid observation that infrastructure and education spending are now insufficient to advance the nation. But Dimon focused on safer corporate issues related to the bank, such as the need for fewer regulations despite the bank being forced to pay $13 billion for its role in the 2008 recession.
But Wall Street should also recognize it is part of the problem via its misguided, risky lobbying, which has not produced anything positive for average Americans. It should also face the reality that financial engineering, money alchemy, leverage, exclusive access to limited deals and the sale of national assets created many billionaires in ways that were secret, marginally legal and totally inaccessible to average Americans. For example, few people have yet to explain how Vladimir Putin became the richest person in the world (estimated net worth $200 billion), yet his success is admired by many of the 1%. Until Wall Street faces these issues in a measureable, visible way by addressing the inextricable political-economic link, Wall Street deserves its tarnished reputation.