I have been meaning to write this idea up for some time — I have discussed it in the media previously, but never really drafted a full article about it — Now I see Adam Davidson of Planet Money has beat me to it with his take.

My approach is rather different. What Wall Street does well is allocate capital to deserving new businesses and technologies (and quite a few undeserving ones as well). And if you ignore the hype, you can save money for retirement — but it is a challenge to learn how to do so in the face of the Buy & Hold mantra.

Not all of Wall Street is a disaster. Capital markets are a major contributor to both the economy and society.

When they buy Congress, become reckless, and use too much leverage that we have real troubles. Then comes the taxpayer funded bailouts, and it heads south from there.

Anyway, Adam discusses where Wall Street’s bread is buttered, and what they do that is positive in this coming Sunday’s NYT magazine. I don’t agree with his take on all of it, but what caught my eye was this chart:

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Source:
What Does Wall Street Do for You?
ADAM DAVIDSON
NYT, January 11, 2012 http://www.nytimes.com/2012/01/15/magazine/what-does-wall-street-do-for-you.html

Category: Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

22 Responses to “What Does Wall Street Do for You?”

  1. ubergrinch says:

    Excuse me while I barf all over this article.

  2. dh2212 says:

    What does Wall St. do for you? Hmmm…. reminds me of Where Are the Customers’ Yachts? or A Good Hard Look at Wall Street (A Marketplace Book) by Fred Schwed Jr., written in 1940…

  3. orvil tootenbacher says:

    “21% other”. please be more ambiguous.

    so most is just “sitting on their hands, waiting my check to come in”.

  4. JimmyDean says:

    I”m willing to bet the vast majority of that interest income is from customer’s margin accounts. One study I have never seen, but would love to, is the performance of customer accounts who use margin vs performance of customer’s who don’t use margin. It would probably never see the light of day because if it did, margin use by the public would probably be revealed for what it is – sophisticated substance abuse – and a lot of people would stop using margin as a result, and presto, 46% of wall st. earnings are at risk.

  5. golfer1john says:

    Where are the commissions?

  6. DeDude says:

    So they got 46% of their money from interest. I guess all those small savers who are wondering where their interest income went have been enlightened- Wall Street stole it. Maybe they used a sliver of it to pay someone to write some fool to write a nice little “we would die without Wall Street here to rape us” piece for New York Times. Wall Street could be cut down to 1/10′th of its current size and still be plenty big to take care of the important services it does for society. Most of the “efficiency” they claim to provide does more harm than good. Its usually just taxation and rent-seeking for the good of the rent-seekers.

  7. Sechel says:

    Wall Street’s model in the 1970′s got it more right than it does now. In those days they were largely partnerships that acted in an agency capacity. Today they treat their customer, not as a customer, but as a counter-party. Where we used to have merchant banking today we have Principal trading.
    The interst income category is for lack of a better word interesting. Bear Stearns used to say we are in teh moving business not the storage business. Sounds like the banks are now doing the latter.

  8. Moe says:

    less than what my garbage man does for me…

  9. willid3 says:

    maybe its the wrong question.
    maybe it should be

    what does wall street do to you?

  10. Todd in SM says:

    I second orvil’s point:

    A graph in which over 1/5 of the data is unknown is VERY scary in this instance.

  11. Expat says:

    Yeah, and some members of the Savak were loving fathers and husbands.
    Gimme a break. I agree that there are some employees on Wall Street who have not personally committed fraud, theft, or some immoral act. However, they are “collaborators”.
    Wall Street performs a function, but that function has become secondary to the new primary function of raping and pillaging.

    My suggestion is a neutron bomb (sorry Barry) on southern Manhattan and a restocking of the banks with engineers, teachers, and librarians. Convert all business schools into nightclubs and bordellos. Providing capital market services to fuel our economy is not rocket science.

  12. Livermore Shimervore says:

    Michal Lewis gave an interview around the time of The Big Short book tour. He said the thing he learned right away when working on Wall Street was that very few people who make their top 0.01% living there take on any risk. And even those limited risk-takers are heavily supervised by other more experienced risk-takers. What you have is a great many people who are nothing more than highly payed “toll collectors” moving one investment into another. The more gentile version of a real estate broker who sellls mansions rather than condos. Yet they all think they are holding up the weight of $14 trillion in capitalism by their own over-burdened shoulders.

  13. Livermore Shimervore says:

    p.s.
    While savings have gone up, slightly, from their historically negative terrain, have we ever in the history of this country ever payed out so much household income towards interest when interest rates were this low? Just imagine how much of a lift we would see in employment and wages if more of that 46% instead of going to a select few on Wall Street, ultimately, went towards greater disposable income to buy durables, rainy day cash funds, investing in tutors for our children, more travel to hard hit areas like Florida and Nevada: the fruit of middle class success — all without going into high interest debt to do so.
    This nations spends trillions of its GDP so that others can have at it with their money.

  14. 873450 says:

    Bear Stearms and Lehman no longer perform God’s work.

    Who misses them?

  15. jd351 says:

    Absolutely Nothing: Wall Street Math 10-2 = 12

  16. philipat says:

    So almost half of those bonuses come from the spead on depositing free money from the Fed? That’s really socially useful and more than justifies the huge bonuses with all the hard work and creativity it takes to do that?!!!

  17. dismal says:

    All the points made in this article are crap.

    The first two points, that our current financial system transfers wealth from the rich to the poor and creates a strong middle class, are clearly wrong with the current trend in rising income inequality, increasing unemployment, increasing foodstamp usage, etc, etc, etc.

    Beyond that, the article confuses our current corrupt financial system with a financial system of any kind. Investment can happen without having a few massive banks that have the power to destabilize the global economy.

    And then the article ends with this gem:

    “One lesson of this crisis is that regulation — no matter how well intended — cannot be trusted to rein in Wall Street. In fact, the largest financial firms have shown repeatedly an ability to take even the toughest of regulations and turn them into profit centers. So perhaps the biggest reason to hate Wall Street is that it has made so many Americans hate such an indispensable system.”

    How can this be the case if all that’s been happening since the 80′s is massive financial deregulation. It seems like there is a pretty clear relationship between deregulation, bank profits, and financial stability, and it’s definitely not that regulation leads to increased bank profits and instability.

    Anyway, it’s pretty rare and fun to read a piece about the economy that is wrong on every point.

  18. victor says:

    I’ll turn the tables on Adam and ask: “What do YOU do for Wall Street?” Buffett responds: You make them rich. How? by enabling them to siphon off an incredible 30% out of the historic 8% average yearly growth of all corporate profits that you are hoping to capture when investing in them via stocks and/or bonds. I would also like to see a pie chart depicting two slices: one titled % of Wall Street’s activities beneficial to society in revenue $ and the rest. Further comparisons with other major industries such as health care or energy would be revealing. Finally, show me a similar chart for the Fed Gov and State Gov’s.

  19. Low Budget Dave says:

    If you took away the zero-interest loans from the Fed, the “interest” would drop to zero, as would most of the other sources of income.

    “Allocate money efficiently”. That’s a laugh. All they are allocating money to is T-bills and themselves. A monkey could do it.

  20. Mr. Davidson’s Planet: NPR/NYT Guru Adam Davidson’s Discredited Economic Principles

    You’d be hard-pressed to find a discipline that shapes our world more than economics, and yet none has weaker foundations or more misguided evangelists. The rise of economic guru du jour Adam Davidson, the co-founder of NPR’s “Planet Money” and columnist for the New York Times Magazine, is perhaps one of the most disturbing illustrations of this unfortunate fact.

    The Curious Field of Economics

    Not too long ago, I asked Nobel Prize laureate Joseph Stiglitz how many economists he met still adhered to the Chicago School free market approach, otherwise known as Neoliberal economics, that was proven to be severely flawed by the recent economic crash.

    “About 60 percent,” said Stiglitz.
    “Why is that?” I asked.
    “For the most simple human reason of all,” Stiglitz told me. “People don’t like to admit that they’re wrong.”

    True, that. Economists don’t like to acknowledge that the models they built their careers upon, taught students to believe, wrote papers in support of, published books in homage to – in short, the models that have driven their careers — are poppycock. When new information and advances in fields like mathematics or physics have occurred, practitioners have had to do reassessments. Newtonian physics had to be updated, for example, because realities asserted by Albert Einstein led to a reexamination of the science that produced a better, stronger field with greater capacity to predict and describe reality.

    But economists are peculiarly slow to come to grips with reality. And what about economic journalists? There is Paul Krugman, the rare serious economist who writes for a broad audience, engaged in the Sisyphean task of pushing back on storm force economic nonsense day after day. Deserving of a Nobel Prize in patience to go along with the one he received in economics, Krugman argues, explains, provides facts, and demystifies mystifications.

  21. victor says:

    @Lynn Parramore, about PK: In a 2009 Newsweek article, Evan Thomas described Krugman as having “all the credentials of a ranking member of the East coast liberal establishment” but also as someone who is anti-establishment, a “scourge of the Bush administration,” and a critic of the Obama administration.

    In 1996, Newsweek’s Michael Hirsh remarked “Say this for Krugman: though an unabashed liberal … he’s ideologically colorblind. He savages the supply-siders of the Reagan-Bush era with the same glee as he does the ‘strategic traders’ of the Clinton administration.

    So: nobody is listening? Not even the current Admin?

  22. GregShields says:

    http://www.justice.gov/atr/cases/f275700/275762.pdf
    http://www.courthousenews.com/2012/01/12/42983.htm

    Here’s one thing Morgan Stanley did for me and my family. They helped Keyspan assure top electricity rates were kept in place for all New Yorkers. While they didn’t initiate this transaction, they’re were men and women employed with Morgan Stanley Capital Group that were happy to accommodate. Institutional ethical structure.

    http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411