Why Wall Street And Its Image Has Not Changed
When you think of Wall Street (WS), what images comes to your mind, a powerful market predator like Gordon Gekko or a morally conscious broker like Seth Davis in the Boiler Room? A realistic answer would be in front of the Senate Banking Committee (SBC) or more acutely firms’ lobbying and political records! Since 2008, WS has done a poor job in the public relations domain to establish an image of confidence and trust. In the 2012 American Values Survey, 72% agree that, “Wall Street only cares about making money for itself.” JP Morgan serves as a case-in-point as to why that is.
The problem lies in the quid pro quo relationship between the political class and the WS elite due to the modern legal system becoming what Frederic Bastiat called, a perversion of the law. While WS’s nature seems to be the epitome of capitalism, in practice it’s more akin to a system of plutarchy and corporatocracy. If it were running a corporate public relations campaign (personified), it might as well be looking for another. While just over a majority, 58% polled agree that,
Wall Street makes an important contribution to the economy.”
So where does the other 42% go? This past week Jamie Dimon sat before the SBC which was more like a kumbaya event rather than a Congressional hearing (not that I have it out for Dimon). While some like Mark Calabria, from the CATO Institute gave him praise for his performance some looked past this horse-and-pony show to JP Morgan’s lobbying efforts and political contributions, the reality of WS’s image.
Dwight Fettig: Current SBC staffer; former lobbyist for financial services reform in 2009
Naomi Camper: 2001–2004 aide to SBC Chairman, Timothy Johnson D-SD
Kate Childress: Former Charles Schumer D-NY aide; Member of both Senate Banking and Finance Committees
Steven Patterson: Former SBC Staff Director for Economic Policy
Nate Gatten: Former Fannie Mae lobbyist; Banking aide to former Senator Robert Bennett R-Utah, who also sat on the committee
• Spent $7.6M+ on lobbying efforts in 2011, according to the Center for Responsive Politics
• Largest campaign contributor to Richard Shelby R-AL (leading Republican on the SBC) and the second largest campaign contributor to Senator Johnson over the past 20 years, according to American Banker Employee contribution totaled $80K+ since 1998 to Senator Johnson and $136K+ to Senator Shelby since 1990
• Only 6 of 22 members have received no campaign money from JPM PAC’s or employees in recent election cycles
With JP Morgan now the number one WS firm with over $2 trillion of total assets, forget about the $2 billion trading loss, in percentage terms it’s immaterial. Besides, congress has no real business in that which they don’t understand the nature of the subject and it’s not even an enumerated power to hold private entities in a type of judicial scrutiny.
That aside, how does this information affect your perception of WS? It does make me think, if this type of relationship has been one of the root causes of the current moral hazard issue and the too big too fail system. If you were Jamie Dimon, what would you do to change JP Morgan’s image or would you?
Sources: Pew Research, ProPublica, and Politico, June 2012
I think there are only two things that determine reputation to the public: the last thing you did, and how long ago you did it. The public views Wall Street as having done a bad thing very recently.
The only way out is to weather the storm and wait until a new bad guy enters the limelight. It isn't of much benefit for Wall Street to appeal to the public anyway, since business generally comes from other businesses and people can't exactly stop using banks the way they can stop using BP's gas stations.
SIFMA and other lobbying groups have been ineffective in engaging the public. The average American still doesn't understand investment banking, nor do they understand the causes of the crisis. When "bad stuff" happens, be it rising gas prices or a spike in unemployment, the public assumes that somehow wall street is at fault.
The media masterfully lets out just enough information to imply that banks are involved in almost any problem. From there, the financial industry is condemned via guilt by association. Rarely is the government's role mentioned. If it is, politicians are always portrayed as having been "bought" by banks.
Wall Street needs to collectively explain what is going on to the public. Almost everybody I meet (not in finance) rants about Mitt Romney killing companies. They live by soundbites and headlines. People were upset about the 2 billion loss...but why? Unless you were a JPM stockholder, you are fine.
I am not sure there's an elegant solution. I would honestly support buying a block of prime time TV and just walking viewers through the crisis and the current situation. The print media, aside from conservative publications, will not print pro-finance stories. It sounds nuts, but forcing the debate to the issues is the only way to improve finance's image. We cannot win on snippets- we don't even have a clear opponent/
They're too stupid to understand, especially because they don't want to. I think it's to our advantage to be frowned upon actually.
The banks did cause the crisis. Not because they are staffed by evil and morally corrupt professionals (I don't think they're worse than other people), but because of the institutional framework that they engineered through the 2-3 decades since the 80s culminating in the repeal of Glass-Steagall and the introduction of legislation to ensure that OTC derivatives wouldn't be regulated.
This pretty much ensured an environment of systemic risk and contagion, this is before we get into the mechanics / structure of sub-prime lending the the instruments used. Sub prime was just the spark.
There were big mistakes outside of Wall Street, like letting Lehman fail instead of bailing it out or having some form of conservatorship and restructuring it / breaking it up in an orderly fashion. That was a government mistake. Some people would argue the politics of it, but I think the ideology free market fundamentalism had some role to play in the decision.
People should care because JP Morgan is systemically important, has an implicit (& explicit) government guarantee, etc... Their losses / speculations put the rest of society at risk and their biggest losses would be born by society. The $2 billion loss won't take them down, but is symptomatic for something that could.When one of my friends at the fund across the street lost $500 MM in one deal it didn't make the FT and journalists didn't write anything about it. Why? Because he works for a PE fund and thus isn't going to run to the tax payer for money, nor does he benefit from implicit and explicit government guarantees. His fund is also not systemically important, because the only derivatives they use are interest rate hedges on some of their loans, or some currency hedges for their foreign portfolio companies; his firm doesn't take deposits from the public. They do not rely on overnight borrowing support from the Federal Reserve, ECB, or another central bank either.
No argument on the cause of the crisis. Banks were essential participants. But current public perception glosses over so many key points.
I know people who literally think Goldman Sachs is trying to steal the money from the government and their savings accounts. You don't see it as much in major cities, but a huge chunk of the population is terribly misinformed. They get their information from the evening news (which might devote 5 minutes to finance on a particularly informative day) and odd episodes of the Daily Show.
If people were informed, they wouldn't be mad about bonuses or the abstract concept of corporate "greed". They would instead be pushing for solutions to currently unresolved problems, such as TBTF institutions and reliance on ratings agencies.
As for your second point about JPM, I understand that it could indicate larger problems. And JPM's failure could cause widespread panic. But, given the relative size of the loss, it didn't warrant the media attention it received.
Had the loss never been addressed publicly, it would still have been addressed internally. Dimon hates JPM losing money more than anybody. The media's portrayal of JPM as reckless and greedy is again a massive oversimplification. I am not in S&T, and am not sure what risk controls the London Whale faced. But I don't think the bank would allow itself to be put at serious risk on the outcome of one position. I would think that the crisis taught them to develop better metrics than VaR.
agree with relinquis, again.
Tip, everyone should click his little blue plus button next to his username so they can get educated on a daily basis through "My Feed".
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