Wall Street’s Continued Self Delusion

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Monarchies don't last forever

 

 

 

 

 

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 do not understand that it is considered part of the problem of economic inequality by most 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, and an incessant effort by established political parties to create a population in constant debt and financial insecurity going well into retirement do not make them popular.

In a recent poll by Bloomberg, billionaires are more than they are admired (53% to 31%), while only 31% consider corporate Wall Street executives trustworthy and favorable. This is undoubtedly no surprise after the 2008 recession, the resulting housing crisis, and, most importantly, the fact that no Wall Street executives were prosecuted for their mismanagement and potential fraud. 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 nation’s major issues 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 most significant 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 primarily benefit Wall Street (i.e. the top 2%) more than the average American.

This disconnect between the wealthy and the masses is 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 and 21st Centuries.

And while the U.S. is certainly not a monarchy, 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 to 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.

This is the problem Wall Street faces as it seeks to balance its own interests, including those of the U.S. financial system and neoliberal political policies, against current realities that are decidedly anti-average American.

Like an entire industry or person, a corporation cannot diagnose itself. Unfortunately, there are not more Wall Street CEOs like Dimon. Still, the effort is futile if they intentionally fail to diagnose the entire problem from the bottom up, not the top down, including their central role in the crisis.

Corporate Contrition?

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 selfish philosophy of Ayn Rand or actual fed policy is debatable, but the result is not. The reality is that political institutions and corporations do not like to discuss their histories and how they contributed to past atrocities or current problems.

Income disparity, low wage growth, voter disenfranchisement, open disdain for the masses in the form of health care coverage, combined with perverted priorities, such as the $1 trillion spent 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. However, 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.

However, Wall Street should also recognize that it is part of the problem due to 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 inaccessible to average Americans.

For example, few people have yet to explain how Vladimir Putin became the wealthiest person in the world (estimated net worth $200 billion, yet his success is admired by many of the 1%. Wall Street deserves its tarnished reputation until it faces these issues in a measurable, visible way by addressing the inextricable political-economic link.

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Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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