The dust has settled since Jamie Dimon’s appearance before Congress a few weeks ago, but there’s something that’s been bothering me about the media coverage. It’s the headline of a certain Bloomberg article, entitled: “Wall Street Forgets Its Job Is to Create Jobs.” I could not disagree more. However, I was intrigued by this quote from Representative Gary Ackerman (NY-D):
Fully warmed up, Ackerman got to his point about what all the hedging on Wall Street accomplishes. “I don’t see how that creates one job in America,” he said. “I don’t see how it helps the American economy. I don’t see how it helps the housing market or the building market or the let’s-make-steel or widgets market.
Fine. I can see his point, even though the objective of hedging is to lock in profits, not create jobs. But should Wall Street’s primary objective be job creation? Absolutely not, and here’s why:
First of all, I think it’s pointless to make a sweeping generalization about Wall Street’s “job.” Having said that, Wall Street does not bear responsibility for directly creating jobs. Finance is a diverse field with dozens of roles, but I would argue that one of Wall Street’s primary functions is to provide liquid and efficient capital markets that will enable businesses to grow. A growing business hires more workers, and Wall Street is nothing more than lubricant in the great engine of the economy.
Congressman Ackerman had some more to add to his views on hedging:
What [hedging] helps is -- if you were right a majority of the time -- then it makes a bunch of money for the guys who did it and doesn’t help the company, the industry, the economy or the country at all. And if you were wrong, it puts systemically everything at risk. And when I say everything, I mean the confidence that the American people, the public, the investment community and everybody else has in the system. And that’s a loss you can’t hedge against.
Hedging seems to have become somewhat of a dirty word these days. Done right, hedging can lock in profits and help provide a measure of certainty. But how do we distinguish between hedging and speculation?
Ultimately, the thing that bothered me was the notion that “Wall Street’s job is to create jobs.” Sure, banks like JPMorgan Chase are major players in the domestic and global economy, so they should bear some responsibility when their actions result in mass layoffs. But that’s certainly not the primary objective of Wall Street. Rather, these banks are there to ensure that businesses receive the capital needed to grow and expand. The jobs won’t be far behind.
How much responsibility does Wall Street bear for job creation?
I thought it was to connect savers with borrowers.
All of the "complex" math and grandiose deals/trades/innovations/etc really mask how simple the role of Wall Street really is. Private industry and governments (I wish the US) are not in the charity business and jobs should not be created, well inefficient ones, if the aim is to subsidize individuals/society. Such jobs essentially take away resources from more productive individuals/systems.
Wall Street's primary functions are 1) provide access to capital and 2) value creation. That's it.
I like this, +1. I'd further elaborate to say that WS connects risk adverse individuals with risk taking ones.
Politicians generally never understand this, but the goal of any business (not just Wall St.) is to make money, not create jobs. If a business could get by with 100 employees, instead of 1,000 employees, they would. It just happens that as you make more money, you generally need more employees. These politicians are usually just pandering to the lowest common denominator and/or don't understand the most basic things about economics/business.
Politicians generally never understand this, but the goal of any business (not just Wall St.) is to make money, not create jobs. If a business could get by with 100 employees, instead of 1,000 employees, they would. It just happens that as you make more money, you generally need more employees. These politicians are usually just pandering to the lowest common denominator and/or don't understand the most basic things about economics/business.
essentially career politicans with no real world experience. what a great world they live in. they have the easiest job, get paid by lobbyists left and right, set their own salaries and raises, free healthcare, free security, and work less than 3/4 of the year.
At a bare minimum, 'hedging' as an euphemism for prop trading creates jobs for prop traders. Bona fide hedging however, has a huge impact on the real economy and job creation.
Of course Wall Street's mandate isn't to make jobs. It's a collection of credit institutions whose purpose is to maximize profits while financing the global economy, which should in turn spur job creation. While it is pretty clear that the quest for short-term profits may have corrupted the client relationship aspect originally fundamental to banking, there are too many valid applications to hedging that affect the real economy to take this criticism seriously.
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