Kim: Stop hating on ‘Wall Street’

Many people have been quick to blame “Wall Street” for the current economic crisis. I believe that when the media refers to that term, they are talking about, broadly speaking, mortgage and loan underwriters, bankers that securitized products and investment professionals that purchased those securities. Without a doubt, “Wall Street” is one of the biggest reasons why we ended up in the mess we are going through.

“Main Street,” whatever that refers to, claims to have been victimized by “Wall Street.” Predatory lending standards were undeniably rampant, and the statement is true — but only to a certain extent. One of the biggest reasons why we are in this mess is the American consumer: precisely, “Main Street.”

From 2000 to 2007, American household debt as a percentage of disposable increased from roughly 100 percent to 140 percent. The expansion of credit led American consumers to purchase houses, draw home equity lines on their homes, get more credit cards, and take out loans on autos. I would characterize this sort of behavior as profligate at best and decadent at worst.

As commercial banks and loan servicers made these loans, “Wall Street” began to securitize these products — that is, package a whole bunch of loans or mortgages into new products and sell them to investors. They claimed this way the individual risks of single loans defaulting were effectively mitigated and transferred. And they did this just about as much as A-Rod did steroids while he was a player with the Texas Rangers. And just as A-Rod is guilty, so is “Wall Street.”

But before all the blame is placed on “Wall Street,” take a step back and consider what would have happened if the American consumer had been a little more prudent. Consider the story of the man in California who, on a $50,000 yearly salary, decided he could buy a $500,000 house. Also, look back at all the speculators who bought homes without even occupying them, looking to make quick, easy money by selling them later.

Had American consumers lived a little bit more reasonably, or wanted to work a little bit harder and earn a well-earned living, these “Wall Street” bankers would not have been able to securitize mortgages and loans. And maybe we would not be in the mess we are in today.

So the next time you feel schadenfreude when you read about another round of layoffs at “Wall Street,” be sure to also look at “Main Street” and shake your head in disappointment.

Marcelo Kim is a senior in Morse College.

Comments

  • ac

    Agreed. This isn't something that can be pinned on the bankers, but on everyone. Unfortunately for people who actually work on Wall Street, "Wall Street" has become more than a place in New York and has become more than a bunch of banks; in the minds of Americans, "Wall Street" has become a symbol for an entire way of thinking: a way that says the American economy does not need a manufacturing base and can rely solely on the strength of the financial banks, a way of thinking that says everyone can have everything they want, a way of thinking that rewards taking risks, even if they are unpragmatic. Essentially "Wall Street" has become some vague term meaning "greed".

    When congressmen actually bring in these CEOs to accuse them of greed, thievery, and bad practises, they are putting on a theatre production in which the entire US population can achieve some great catharsis. Unfortunately, politicians have been able to manipulate this into some faux populist bent.

  • Y'11

    Good point that needs to be emphasized more!

  • Gordon Gekko

    Yes, Wall St practices did get out of hand & the financial sector became bloated over the past decade but Wall St & financial innovation have been the primary engine of growth for America's economic power; Main St & Wall St should have a symbiotic relationship, not an "us vs. them" dynamic. While the US consumer helped fuel this credit bubble irresponsibly, equal blame should be placed on the regulators & our government. Where was the SEC? Asleep at the wheel while allowing swindlers like Madoff & Stanford run Ponzi schemes. While I am a staunch proponent of free market capitalism, we need to recognize that our laissez-faire preaching monetary authorities also got it wrong & by keeping policy too loose for too long, allowed massive amounts of leverage to build up on both the institutional and retail levels. This cheap money essentially created artificial profits which the market is now regurgitating back. Congressional hearings, as pointed out by the 1st post, are nothing but superficial displays of histrionics & politics as usual. Sadly, our government has made things a lot worse with their ad-hoc solutions and responses by failing to identify & recognize the real issues. Furthermore, despite all the pomp and hope associated with our new administration, we're learning the hard way that nothing new has been proposed so unfortunately, nationalization of major banks is on the horizon & we're due for a major purging of our markets & the way we conduct business. We may be entering an age of prudence/savings & we need drastic changes to our current state of affairs but let's hope we all learn from this & create a more solid bedrock for future generations of Americans and the global economy.

  • Anonymous

    The points about conspicuous consumption and debt are well taken (if beaten to death over the last few months), but the part of this argument I always find baffling is the idea that consumers should have acted more responsibly so that bankers couldn't have made fortunes betting against them. If you're going to argue that we need to be better people, don't turn around and say, "Of course I'm going to take advantage of you if you let me. That's just the way I am."

    The other point that's always baffling is the bankers complaining about the congressional harangues being useless theatrics. Of course they are -- because the government is in bed with the banking lobby! Why are YOU angry that they're theatrics?