With recent headlines comparing record stock market lows to the 2008 financial crisis, all eyes are on Wall Street. The financial industry was started on Wall Street, New York City, in 1792. Since then, Wall Street has become the financial hub of America, spanning an eight-block radius and housing investment firms, banks, and the New York Stock Exchange. For the ambitious analyst or the bold investment banker, working at a big Wall Street firm is pretty much the dream. But over the years, movements like Occupy Wall Street have drawn attention to the potential greed and corruption, captured in many Hollywood films, that can infiltrate powerhouse financial firms.
Here are three reasons why Wall Street’s financial industry deserves its stigma of depravity, and three reasons why it shouldn’t get a bad rap.
Wall Street is peppered with problems
Crossing crooked lines
Movies like Boiler Room and The Wolf of Wall Street hone in on the corruption that can easily worm its way into the Wall Street lifestyle. They depict unqualified “brokers” using high-pressure sales tactics to convince unsuspecting civilians to invest with them, usually by giving them false information about various stocks. The brokers become millionaires, and the people who invest with them often lose their money. Unfortunately, these movies aren’t works of imaginative fiction; The Wolf of Wall Street is based on a true story, and there are many examples of real-life corruption among Wall Street’s banks. For instance, JPMorgan Chase paid $410 million in penalties for manipulating electricity markets in California in 2013. Additionally, that same year, $5.6 billion was paid by six major banks in response to allegations that their investment banking traders tried to manipulate foreign exchange rates. More recently, in December 2019, Goldman Sachs began talks with the US government about a possible $2 billion settlement and a potential admission of guilt over their alleged role in a Malaysian corruption scandal.
All men are created equal – except financially
The information that Wall Street traders are privy to creates an economic imbalance between traders and the average Joe. Traders are more well-informed about the stock market, and as a result, they stack the market against the lay investor. They get large shares of stocks with low, early prices, which means that anyone without inside information has to pay a slightly higher price for the same stock. Overall, Wall Street bonuses are around double the total earnings of Americans who work full-time jobs at minimum wage, proving that the financial deck is stacked in Wall Street’s favor. The movie The Big Short reveals – and explains – this exact dichotomy, and how Wall Street hedge funders used their unique insight to their advantage, profiting off the bursting housing bubble.
Wall Street firms have spent over a combined $150 million per year in an effort to influence political policy. A study by the Federal Reserve Bank showed that there’s a “revolving door” between financial executives and government regulators, meaning that regulators can easily become part of the private sectors that they oversee, simply by switching jobs. With the amount of money flowing through Wall Street, it’s easy to see how lobbyists can sway government policy to reflect their best interests. Democracy is supposed to be immune to wealth (or lack thereof), yet with the millions allocated from Wall Street pockets towards lobbying in Washington, that’s clearly not the case.
America can’t live without Wall Street
Keeps our money safe
“The other 99%” (people who don’t fall into the wealth bracket of the rich) may not like the gap between the rich and the poor that Wall Street has come to represent, but they need Wall Street all the same. It loans savers’ money to businesses in need, allows for credit card transactions, and provides small investors with opportunities to buy low-cost stocks. Society can’t survive without banks and bankers (Bitcoin is still far from replacing them), which play critical roles in channeling savings into investments. Because of Wall Street, we have a system that we can trust to handle our money properly.
It’s good for the economy
The stock market works thanks to the liquidity Wall Street firms provide. It’s easy for people to buy and sell securities, because bank traders will facilitate the process. When the market is hot, companies can use their stock to raise capital. The money can then be allocated towards increased business investment, which leads to higher economic output. Additionally, Wall Street capital has been used to fund companies in vital industries like technology, which has created many jobs over the years. Without Wall Street, none of these market-based processes would work effectively.
A beacon of opportunity
America is built on a capitalist pyramid, and Wall Street employees are resting on the top. When joining a major firm straight out of college, analysts can make an easy $85,000 a year before bonuses, and managing directors can top an annual salary of $450,000. In 2017, Wall Street employees took home an average of $140,000 in bonuses – an even higher amount than the previous year. It’s no surprise, then, that employee satisfaction across Wall Street firms has recently been at an all-time high. For those who are willing to put in those grueling 12-hour days, working on Wall Street is a direct manifestation of the American dream.
The Bottom Line: Wall Street may embody flawed ethics and create divisive gaps between the wealthy minority and the rest of America, but its existence is essential to the success of the economy. What do you think? Have you benefited from Wall Street?