January 20, 2017 (Inauguration Day): As the theater of the 2016 Presidential Campaign fades from our rear view mirrors, and (hopefully) we all take a breath and wish for the best in 2017 with the new regime, may I make a suggestion to politicians on both sides of the aisle—please, PLEASE stop bashing Wall Street!!
Let’s look at this with a bit of logic. Wall Street, an eight-block long street in Lower Manhattan, really represents Financial Services, a massive industry which includes Banks, Asset Managers, Insurance Companies, Brokerage Firms and the like. I know when politicians lambaste Wall Street they think they are referring to the evil Hedge Fund operators and of course their favorite piñata, Goldman Sachs.
But the problem is, everything is too intertwined. You can’t bash Wall Street out of one side of your mouth and say out of the other side “but I support the Insurance Agent in Main Street USA”. You see, that Insurance Agent works for a company whose assets are managed and protected by the smartest institutions and consultants they can find, the people that will make sure they can pay claims and stay in business.
You may be shaking your head and saying “what about the greedy behavior that led to the Great Credit Crisis of ’08/ ’09?” No one will argue that it wound up being a bad trade. This missive is not a place where sides will be taken but let’s agree that well-meaning Government policies, both regulatory and from a tax perspective will drive behavior and create anomalies and opportunities that will be exploited by those in the know for the purpose of making money. Let it be noted that many people go into Financial Services because they like money and aren’t shy about it—if they just wanted to help people they’d be Nurses or Guidance Counselors, Ministers or Hospice Workers.
Smart Regulation is a good thing, as is access to regulatory data. Broker Check is a great website to quickly learn more about anyone who has a FINRA registration. Going to the SEC site and pulling the ADV of an RIA is really quite helpful. But the fact of the matter is that a bad actor will simply bypass regulations no matter how many there are– character deficits aren’t cured by pounds of paper. I’ve come to the conclusion that people in our industry don’t wake up in the morning seeking to lie, steal or cheat. Those that do should be drummed out and made examples of for sure. I have no problem with President Trump stacking his Cabinet and Staff with Goldman Sachs alumni (Bannon, Cohn, Mnuchin, Scaramucci)—why not get the smartest, best educated, most knowledgeable and connected people on your team?—just don’t blast Goldman Sachs along the way! Both sides do it ad infinitum and it is getting tiresome. Making it harder to do things in the Financial Services industry will just force more good jobs to go away. The industry is constantly driving efficiencies on its own anyway—witness the rise of FinTech, Quant Trading, passive investing, merger activity et al.
In an era where Baseball Players who bat .250 get multi-million dollar contracts, and marginally talented entertainers are raking it in—some famous just for being famous—there are definitely excesses in Financial Services where certain people garner outsized compensation rewards for marginal accomplishments. Such are the occasional results of a free and capitalistic system. But the Wall Street persona that is constantly being pilloried employs far more than a Soros or a Madoff, witnessed by:
The Wolf of Wall Street was a greedy Broker with a me-first attitude and not emblematic of the professionals who go into the Financial Services business. The proprietary trading model that exists inside Global Banks like Goldman is a shark tank for sure but not illegal. Wall Street will always go through ups and downs, creative destruction, new products and derivatives, and the same excesses as other industries. I could care less if the Hedge Fund/Private Equity players lose their favorable tax treatment on carried interest, but I don’t lose sleep at night hoping it happens.
I implore our Politicians and thought leaders to go get another bogeyman in the next election cycle. Let’s actually grow the industry with the aforementioned Smart Regulation and root from the sidelines to help it to flourish and prosper, before companies and jobs start disappearing or moving offshore. Pick on a better target if you must—maybe a .250 hitter, or better yet, a Kardashian!
Dan Kreuter is Chairman of Gladstone Group Inc., which provides Executive Search and M&A Advisory to the financial services sector.
By: Daniel A. Kreuter