The mission of Wall Street
By Daniel at 4 January, 2010, 12:14 am
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Let us be clear; the mission of business is to make a profit within the laws of land. Everything else (social benevolence, et al) is a cost, which can only be afforded through profitability. The ‘failure’ of Wall Street can only occur in two ways; either laws were broken or the laws were badly written. The first is addressed in court and the second is addressed in the legislature.
Criminals will always find a way to break the law, but their actions cost us pennies. The real damage is done by elected officials who create laws with a ‘mission’ to engineer a desired result, often with no thought of unintended consequences. Three examples:
1. Corporate-provided healthcare became a ‘fringe benefit’ in order to bypass wage/price controls after WWII. Its unintended consequences include lack of portability/loss off coverage, etc. Employees became indentured to the whims of large firms.
2. When executive compensation came under fire in the 90’s, corporations bypassed the law by issuing stock options as major source of income. The unintended consequence was that ‘Wall Street’ shifted its focus to short-term stock performance, often to the detriment of long-term profitability(capital cultivation, ruthless cost cutting, financial maneuvers, etc).
3. When Congress (via 1977 CRA) encouraged, nay coerced, lenders to relax mortgage standards, risk increased. Still, Investors did not bite hard until ‘92, when the risk was tacitly assumed by Fanny and Freddy. And with little perceived risk, ‘Wall Street’ took full legal advantage of the situation, bundling and selling these instruments like hotcakes to investors who thought they were getting government-guaranteed loans at above market rates. We all know the result of these unintended consequences.
- Alan Veenstra
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