What Wall Street’s Critics Miss

Editor’s Note: The following excerpt is the second in a series of three adapted from David L. Bahnsen’s new book, Crisis of Responsibility. It appears here with permission.

Wall Street is a creature of, not the cause of, what plagues the culture. The mere existence of sophisticated capital markets in America is not a negative; it is actually a sine qua non of the American economy. Furthermore, hating Wall Street is nothing new. It has invited public scorn since the beginning of modern finance, because class envy sells, because arrogance and indifference have often emanated from the pillars of finance, and because it is so easy for the press and politicians alike to tap into class frustrations.

However, the job growth made possible by sophisticated capital markets is undeniable. A financed and capitalized post-Industrial Revolution America brought tens of millions of people a decent wage and quality of life. It is a historical fact. Life in America would be unimaginably worse if we banned dealmaking, trading, advising, structuring, and synergizing the capital structure of American business. Must capital markets in our country be accompanied by systemic risk, brute arrogance, and excessive greed? Certainly not! But we do need capital markets, even though cultural and moral deficiencies in society may be magnified in the world of finance. Such is the nature of things — the power and material prosperity involved in directing capital markets makes those who do so highly susceptible to excess.

When I entered my career in financial services, I was certainly affected by the Hollywood characterization of Wall Street as a place of hedonistic greed and excess. Whether or not I liked it, I had a vision of Manhattan skyscrapers filled with Gordon Gekko-like characters. I pictured buildings full of wealthy men who cut deals all day and partied all night — people who lied, cheated, and stole from one another, then attended $1,000 per plate black-tie galas alongside accomplices and victims. It didn’t take me long to realize that a movie made about what really happens on Wall Street would disappoint ticket buyers immensely.

As in any business, there are, of course, bad apples. Certainly, some folks live on the edge of hedonistic pleasure (an indictment hardly unique to Wall Street; hedonism is far more prevalent on college campuses than in the corridors of American finance). But I have found very few Gordon Gekkos and quite a few soccer dads in my chosen field. Though there are men and women with tremendous career aspirations (hardly a sin), the vast majority of people I’ve worked with on Wall Street, from senior leaders at behemoth investment banks to top hedge-fund managers to bond and equity traders across Wall Street trading desks, are, well, family people. The top levels of Wall Street, the middle management of American banks, and the world of traders and asset managers are all filled with people who put their pants on one leg at a time. Like so many in middle-class America, they’re often hopeful about their annual bonuses, stressed about their kids’ grades, and almost always patriotic. In other words, they are generally normal people.

Wall Street is truly a challenging force to either attack or defend. For one thing, it’s hard to define. It is not a physical place anymore. Wall Street’s geographical diversification has accelerated since 9/11, but it was in motion prior to that day for a number of reasons. First, finance had become globalized (Deutsche Bank, UBS, Barclays, and others are all “Wall Street” firms — meaning global financial superpowers — but they’re all based in Europe). Second, even within Manhattan, New York-based firms have diversified all over the metropolitan area (from midtown to Lower Manhattan to Hudson Yards). Third, with the advent of Silicon Valley 40 years ago, venture-capital firms became an increasingly potent part of capital markets, making the West Coast (San Francisco, Menlo Park, Palo Alto) every bit as relevant a cultural finance center as New York.

Consequently, when we use the term “Wall Street” now, we don’t refer to the iconic street that runs from the East River to Broadway in Lower Manhattan, off of which the New York Stock Exchange sits, mere blocks from where the Twin Towers once stood tall. Rather, Wall Street is a catchall phrase for modern financial institutions, from the behemoth private-equity firm Blackstone in midtown Manhattan to the often-vilified Goldman Sachs in Lower Manhattan to the British behemoth Barclays across the pond to the venture-capital geniuses at Kleiner, Perkins, Caulfield & Byers in Menlo Park. Why does it matter? The lack of specificity about what Wall Street is, and what or whom one is referring to when decrying it, has greatly helped the cause of its critics.

Not coincidentally, the same is true regarding criticisms of free trade and Washington, D.C. The tighter and more specific the enemy becomes, the greater the burden to justify accusations, connect dots, and present the case for real, definable iniquity from very specific actors. That is not to say it can’t be done. There is plenty of opportunity to find real malfeasance committed by real people when discussing Wall Street or Washington. However, we are talking about a broader cultural narrative that has taken hold, and narratives do not like specifics. Lambasting an entire institution is easier, as it plays into the human tendency for scapegoating. Plus, it provides psychological comfort for people to believe some (or all) woes are the by-product of a massive, undefeatable force.

Like each of the popular bogeymen, Wall Street has a core function that is not only good, but vital.

If one were to say, Bill stole from me, evidence would be required. There would need to be specific scrutiny of Bill, a real and narrow fact pattern, and, at the end of the day, a conclusion about what exactly Bill did or did not do. But if one says, Wall Street is ripping us off — then all such specifics get bypassed. Us is usually a consortium of middle-class, working people who don’t take car services to the office or vacation in the Hamptons. The imagery alone promotes an “us versus them” binary in which generalizations can be accepted without much discrimination whatsoever. Accepting as fact that large, undefined entities are working against you is the mother of fatalism. Several beliefs and conclusions slide down the slippery slope from that fatalistic presupposition and serve a dual purpose. They muddy the waters of self-evaluation and numb the responsibility sensors of the people who choose to see themselves as victims.

The financial crisis allowed a broad narrative to form that vindicated many guilty people — individuals walking away from the responsibility of making a house payment they were often completely capable of making, for example. The narrative also condemned many entities without justification, such as those who provided capital to people who would later walk away from what they owed. As I’ll demonstrate, the financial leverage and greed that nearly brought down many financial superpowers was cut from the same cloth as the financial leverage and greed that became systemic across all of society. In other words, Wall Street was no innocent party in the financial crisis, but its greedy actions were within the same negative feedback loop as the rest of society — short sightedness, myopia, buck passing, and total disregard for how one’s actions may affect others.

The immoral climate ran deep and wide. It did not exclude Wall Street, by any means, but it didn’t begin there either. It was part of a vicious cycle created by the cultural decline of thoughtful consideration, morality, integrity, and personal responsibility.

Like each of the popular bogeymen, Wall Street has a core function that is not only good, but vital. Like all the others, it features excesses and cringe-worthy examples of selfishness, but as long as we have capitalism, we will have capital markets. Lovers of liberty and freedom should want vibrant capital markets driving free and open markets of business and innovation. Wall Street’s vital function — providing capital for American business to grow, innovate, fund expansion, and globally compete — should not be demonized. And yet, where policies do help the privileged few at the expense of the struggling many, we do have a duty to resist and seek change. The ability to match investors and lenders with projects and entrepreneurs is true and indisputable, and there should be no justification for greed, fraud, distortion, corruption, or excess.

Here I should make one thing clear: My defense of capital markets is in no way a defense of crony capitalism. Quite the contrary, crony corruption jeopardizes the very aim of free markets. The net-positive effects of Wall Street — matching buyers and sellers, aligning investors and projects, and advising on the most rational use of capital — are diluted when public confidence disintegrates as a result of special treatment or outright fraud.

Unfortunately, the angst in this new era has failed to delineate between healthy, competitive markets and suspect cronyism. Restoring American prosperity will require not only robust capital markets, which we surely have, but also an American people who believe the financiers are not out to get them. Reacquiring that belief will require an end to the scapegoating, significant reform within Wall Street, proper alignment of incentives, and a societal re-moralization that brings Wall Street along with it.