Commentary: America’s big banks are self-destructing
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — Warning: “Capitalism as we knew it is dead.” What an indictment: “Capitalism … dead.” Just a few years ago. A grabber in the Economist. But even if Wall Street banks ran that message as a public admission, in flashing neon lights racing around Morgan Stanley’s Times Square ticker every day for the past three years … it wouldn’t matter.
Why? Wall Street has lost its soul, has no sense of public responsibility, cares little about the rest of America. Adam Smith’s “The Wealth of Nations” established capitalism with a moral code for economic behavior, a secular theology in the Age of Reason.
Once a moral code for individuals and nations, capitalism has been distorted, manipulated and degraded by our too-greedy-to-fail banks, the Goldmans, Morgans and their co-conspirators who now care only about making short-term profits for a narrow base of shareholders and insiders, with no care for America as a whole. Yes, capitalism is now morally bankrupt, a dying economic religion, thanks to the narrow, narcissistic behavior of the Wall Street banking community.
So today Wall Street’s giant banks are back making huge profits, only for insiders and shareholders. Last week a Financial Times article cheered: “Wall Street returns to era of big profits.”
But at what expense? With wages flatlining now for three decades, as the long-term survival of America is threatened. That’s how the new pseudo-capitalism works. With 93% of short-term profits to the top 1%. And the long-term interests of the general public — jobs, health care, pollution — all irrelevant.
Revive America? Or increase bankers monopolistic power
Three years ago “Capitalism as we knew it is dead” was the headline of a telling ad for a new book co-authored by the highly regarded American editor of the world’s leading business magazine, the Economist. “The Road From Ruin: How to Revive Capitalism and Put America Back on Top” was envisioned as a road map digging back from extreme damage Wall Street banks had inflicted on America in the 2008 credit collapse.
Three years later, it’s clear the road map has not only failed, America is actually closer to another, bigger collapse than the 2000 and 2008 crashes combined. In their 2010 piece, Matthew Bishop, the Economist’s business editor, and co-author Michael Green clearly stated, “capitalism as we knew it” died on Sept. 15, 2008, the day Lehman Brothers went bust. Yes, capitalism was dead.
What we didn’t know then was what would replace it and whether it would be “any better than what went before.” But one thing’s certain, their title — “The Road From Ruin: How to Revive Capitalism and Put America Back on Top” — was a subtle yet clear indictment that capitalism was in fact in ruins, killed by Wall Street’s too-big-to-fail banks in 2008, and they needed to find a road map that would “revive capitalism … put America back on top.”
Did the Bishop-Green four-part plan work? Today it’s clear the only ones back on top are Wall Street banks, not America, not the other 99% of America. In fact, it’s clear America is deteriorating. But let’s scan the few years, then you can judge.
Wall Street’s moral compass is so broken it’s killing capitalism
In fact, life has become far worse since the 2008 crash and destructive for America, a cancer metastizing inside the Wall Street banks. USA Today just reported that “Wall Street has a shaky grip on its ethical compass … Despite the financial changes enacted after the 2008 financial crisis, improper and even illegal activity is perceived as common among traders, brokers, portfolio managers, investment bankers and other” insiders in a survey by a New York financial-district law firm, Labaton Sucharow.
How bad is Wall Street? “More than half of the respondents, 52%, felt it likely their competitors had engaged in unethical or illegal activity to gain a market edge. And 24% felt company co-workers had done so” and “nearly one quarter, 24%, said they would likely engage in illegal insider trading to make $10 million if they could get away with it.”
It gets even worse when the moral integrity of Wall Street insiders is pitted against their own clients and the public: “In all, 28% said they felt the financial-services industry does not put the interests of clients first.” Yes, even public shareholders take a back seat to bank insiders: 29% even said “they believed financial-services professionals may need to engage in unethical or illegal activity in order to be successful.”
Wall Street’s moral failure is America’s ‘economic ticking time bomb’
USA Today’s Kevin McCoy found a “particularly troubling and consistent finding throughout the survey … that Wall Street’s future leaders, the young professionals who will one day assume control of the trillions of dollars that the industry manages, have lost their moral compass, accept corporate wrongdoing as a necessary evil and fear reporting this misconduct.” Bottom line: “This is a ticking economic time bomb that responsible organizations must immediately defuse or pay a heavy price.”
Translation: Wall Street morals will continue degrading in future years. Moreover, “the survey results found a similar decline in ethics as the one highlighted in “Wall Street Values,” a new book that concluded “no amount of structural reform and government regulation will ensure the stability of the global financial system unless the ethical practices and values of Wall Street professionals are aligned with market efficiency and the public welfare.”
Get it? Wall Street is a breeding ground for leaders with no morals.
Four big ideas for resetting Wall Street’s moral compass
Is it too late? Can the Bishop-Green plan still work? Reverse the trend? Can Wall Street’s moral compass be reset, “realigned with market efficiency and the public welfare?” They believed so a few years ago. But now?
Here’s a close look: “The Road From Ruin” offered four big ideas as a grand vision of what a revival of capitalism must have to succeed:
First: Rethink economics
Unfortunately, economics is even more at the mercy of partisan political whims, bankrolled by special interests and their lobbyists. As Nobel economist Joseph Stiglitz, author of “The Price of Inequality,” wrote last year on Project Syndicate: The “numbers show that the American dream is a myth. There is less equality of opportunity in the United States today … in any advanced industrial country … and the gap with the rest of them is widening. In the ‘recovery’ of 2009-2010, the top 1% of U.S. income earners captured 93% of the income growth.” Yes, America’s economy has gotten worse since 2008.
Second: Redesign global governance
Bishop and Green said the redesign of capitalism must also include loss of the dollar’s reserve-currency status to create “a stabler global financial system.” Hell no, says Wall Street, while fighting all regulations. After a U.S. Chamber of Commerce speech a couple years ago, the headlines for J.P. Morgan Chase CEO Jamie Dimon shouted: “Dimon Worries Financial Regulation Will Doom Banks Forever.” Yes, “doom forever,” that hyperbolic. Then Dimon attacked Dodd-Frank as “the nail in the coffin of big American banks.” With that message, it’s clear why there’s no political compromising in Washington.
Third: Capitalism must rediscover its soul
Yes, Bishop and Green warn that for capitalism to return from the self-inflicted ruins, “capitalism must rediscover its soul.” Capitalists must put “values back into business.” Capitalists must “serve the greater good,” not just their stockholders and insiders. In his “Battle for the Soul of Capitalism” Vanguard’s Jack Bogle said Wall Street had degraded into a “mutant capitalism” that no longer resembles Adam Smith’s original principles. The “battle for soul” was lost. Capitalism is now an out-of-control pandemic destroying moral values from within. Profits are Wall Street’s sole addiction. Never the public interest.
Fourth: Promote financial literacy
Financial literacy is a sick joke Wall Street plays with investors and politicians. Even best-of-intentions programs never work because they’re designed by and biased in favor of Wall Street as research by Nobel economist Daniel Kahneman and his disciples proves. Literacy advocates assume, erroneously, the human brain can retrain itself to make rational decisions about money. Wrong. Wall Street is a casino, Main Street always loses.
Bottom line on four big ideas: Special-interest dominated politics will never “rethink economics.” How about “redesign global governance?” No chance. Conservatives demand less oversight, free markets, a Reaganomics revival. It’d be unAmerican to lose the dollar’s reserve-currency status. “Rediscover soul?” Never in today’s rigid hate-filled ideological-divided political wars. Nor will Wall Street ever surrender its right to keep manipulating “financial literacy” programs to their advantage.
The Bishop-Green four big ideas were a powerful road map when Wall Street was near virtual bankruptcy a few years ago. Yes, worth a try. Unfortunately “The Road From Ruin” never had a chance of putting all Americans on top. Never had a chance of reviving real capitalism. No, Wall Street was desperate, took a different road to reviving capitalism — Wall Street filed for moral bankruptcy. Only Wall Street got back on top.
Moreover, since 2008 Wall Street has further hardened its monopoly over the American economy and government, while further degrading capitalism, democracy and the rest of America. Looking back, Bishop-Green was DOA against Wall Street’s ruthless army.
Paul B. Farrell is a MarketWatch columnist based in San Luis Obispo, Calif.