You want to really understand what’s going on inside Wall Street’s brain? Read USAToday: ”Financial Reform: Wean Wall Street Off It’s Gambling Addiction.” You get images of Wall Street as an upscale skidrow with its own private casino, a “gated community” protecting millions of unrecovered self-destructive gambling addicts, to extend USAToday’s metaphor. And as with most addicts, Wall Street sure hasn’t taken that crucial “Step One: Admitted We’re Powerless Over Our Gambling Addiction and Our Lives are Unmanageable.” Yes, out-of-control and unmanageable.
Without that Step One admission, Wall Street’s addicts just keep ruining everything in sight, not just themselves, their families and friends, but American capitalism, democracy and the global economy, as we saw in the recent subprime credit meltdown. Addiction and addicts are easy to spot. Years ago I worked professionally with about 300 recovering addicts and alcoholics from Betty Ford and other centers. Here’s how USAToday’s editors see Wall Street’s out-of-control disease today:
Once upon a time, Wall Street was about providing services to institutional clients. It helped them raise capital through lending, and the underwriting of stocks and bonds. It helped them manage their assets by advising them on what to buy and what not to buy. These days, Wall Street has come to resemble a vast and sophisticated gambling operation aimed at making fast profits and paying out fat bonuses. Its investment banks place bets with both their own money and that of clients. And, not infrequently, they make money by taking what might be considered contradictory positions — like the recent disclosure that Goldman Sachs was secretly betting against mortgage products that it promoted in public.
Read the rest of USAToday’s editorial about Wall Street’s loss of its moral compass and addictive behavior. But what really got my attention was Scott Garrett’s (R-NJ) “Opposing View” editorial on GOP talking points: “Don’t Restrict Innovation: Subprime mortgages, not in-house trading triggered financial crisis.” But what’s “innovation?” When former Fed Chairman Paul Volcker was asked what was the most important financial innovation in the past 20 years? His answer: “The ATM!” But not for Wall Street! They love unregulated free-markets. And they hate the new “Volcker Rule,” separating commencial from investment banking. Wall Street’s idea of “innovation” is the super-secret “high-frequency trading” algorithms, and their unregulated derivatives trading in the $670 trillion global shadow banking system. Innovation? Wall Street’s idea of “innovation” is anything that satisfies Wall Street’s insatiable addiction to gambling and getting rich, as we see in Garrett’s distracting defense:
The goal of financial services regulatory reform must be to achieve financial stability and end taxpayer-funded bailouts. This process should not be viewed as an opportunity to restrict innovation or exact punitive regulations on financial activities that did not cause the crisis. It would be counterproductive, to say the least, if in our efforts to ameliorate so-called systemic risk, we advance policies that take away the ability of so many firms across all sectors of our economy to responsibly manage their own risks.
Wall Street’s addictive behavior is America’s ”systemic risk.” And yet Garrett offers the same irrational arguments that killed the Glass-Steagall Act back in 1999, a law that for seven decades had protected Main Street Americans by separating the high-risk speculative activities of investment banks from the low-risk activities of commercial banking. Breaking down that wall was one of the major causes of the 2008 subprime credit meltdown that nearly bankrupt Wall Street.
Today Wall Street is still acting like a unrecovered addict. Refuses to surrender. They want to continue gambling at their own casinos, without changing their behavior one bit, without separating high-risk and low-risk banking, without any awareness that, as people in recovery say, “if you keep doing what you’re doing, you’ll keep getting what you got.” Except next time it’ll be far worse. Their “innovation” argument is dangerous, reminds me of unrecovered addicts promising for the upteenth time that they just need “one more for the road,” or “they “got it under control,” or some other contorted reason, anything so they don’t have to change, don’t have to give up their addiction. Bottom line: Wall Street is an addict, innovation is their drug, they are on a coundown to self-destruct, and they’ll take the rest of us with them.
For more, read my DowJones-MarketWatch column on “Financial Innovation: Wall Street’s New ‘Soul-Sickness’ Lacks a Moral Compass.”