Wall Street Still Just Doesn't Get It

Steven Rattner Wall Street Journal June 11, 2010

Record levels of income inequality contribute to the sour mood of the citizenry. Brushing off responsibility for the excesses of the bubble doesn't help.

A few days ago, I ventured into the belly of the beast -- a mostly male, mostly young, sweaty gathering of more than a thousand turbocharged, chest-thumping hedge fund investors.The dozen orators at the Ira W. Sohn Investment Research Conference -- a thoroughly estimable charitable event -- chose an eclectic mix of topics. Some touted their pet stock ideas. Others deplored the dire straits of the United States and predicted economic Armageddon. All that separated some of these preachers from those on the televised Sunday morning revival meetings were periodic shouts of "Amen!"

I used my allotted 14 minutes on the stage at New York's sleek Jazz at Lincoln Center auditorium differently. Drawing on my stint in the Obama administration, I tried to offer a perspective on why the president and his advisers made the policy decisions they did as they battled the worst economic and financial crisis in 70 years.

I flashed slides bubbling with wacky, heat-of-the-moment quotes from sages (including two Nobel Prize winners) to remind the audience of the administration's wisdom in resisting the many calls for ill-advised, extreme actions such as nationalizing banks.

Given my former role as lead adviser on autos, I zeroed in on the rescue of the car companies as an example of sensible policy. I noted the increasingly optimistic GDP estimates from one representative forecaster. And so on. A chilly breeze from the audience blew toward the podium.

I pivoted to my next point, trying to explain that the current hostility toward Wall Street on the part of the American citizenry was both deep and understandable.

But my attempt to award the administration credit for trying to manage the anger by recalling President Barack Obama's remark a year ago to a gathering of bankers -- "My administration is the only thing standing between you and the pitchforks" -- was met with stony silence.

What's wrong with Wall Street?

I was dumbfounded. Was he seriously questioning my suggestion that 30,000 Americans should not command a full 6% of income in this country (a higher percentage than at even the end of the Roaring '20s)? I blurted out the first words that came into my stunned head: "I hope you are kidding."

Some in the audience applauded that remark but I couldn't tell if they were putting their hands together for me or for the heckler. As my speech progressed, I concluded that perhaps the protester was taking exception to my praise for Obama's balanced approach. Since returning to New York from the Auto Task Force, I have heard many financial types say that the president should have gone to the mat in defense of the banks. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 304, 314, {"configCsid": "MSNmoney", "configName": "player-money-4x3-articles-inline", "player.pg": "MSVNIC", "player.bsbpg": "MSVNI3", "player.vcq": "videoByUuids.aspx?uuids=ea5804dc-40cd-4f5b-95fa-77d3f25b174e,fd2e2c8f-a70a-45c4-ac1a-dd00b5b9681a,763fd73d-ae27-4910-b27e-b9560bba5308", "player.fr": "iv2_en-us_money_article_Investing-Extra-inline"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=ea5804dc-40cd-4f5b-95fa-77d3f25b174e,fd2e2c8f-a70a-45c4-ac1a-dd00b5b9681a,763fd73d-ae27-4910-b27e-b9560bba5308;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');Let's get real. As a long-serving veteran of Wall Street, I'm in heated agreement that the financial industry is one of the greatest success stories in U.S. business history. The vast majority of the major investment banks, private equity firms and hedge funds in the world were created in America. In an era where the competitive edge of a developed country will increasingly need to be its brains rather than its brawn, financial services hold the promise of being one of America's growth industries for the 21st century. It may not be quite God's work, but having liquid and efficient capital markets is critical for any vibrant and growing economy.

But by conveying little sympathy for the many suffering Americans and brushing off responsibility for the excesses of the last bubble, Wall Street has managed to exacerbate the public anger, which in turn has been quickly transmitted to our elected officials in Washington.

Chief executives can preach all they want about the need for courageous political leadership but the cold, hard reality is that no elected official -- not even the president -- could survive full-throated resistance to the current tsunami of populism.

As I left, one sympathizer offered reassurance: "They're just angry because they haven't made much money this year." I thought about another of my slides, one that showed that income of the average American worker (after adjustment for inflation) was lower in 2008 (let alone 2009) than it was in 1999. How many of the attendees could say the same?

Steven Rattner worked for 26 years as an investment banker and private equity investor before serving in the Obama administration as counselor to the secretary of the Treasury. His book, "Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry," will be published by Houghton Mifflin Harcourt in October.More from MSN Money and The Wall Street Journal

'Too big to fail' gets even bigger

Verizon strives to close iPhone gap

The growing backlash against Warren Buffett

Opinion: Are you smarter than a fifth-grader?

5 huge CEO paydays

Gold settles at a record

Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=6.431579; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=190;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingStocks to WatchCitigroupGoldman SachsBank of AmericaMen's WearhouseBHP BillitonChevronAppleIBMFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='bvp63ivycthtx7qen6i5yaey0mgk0yq5';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 10 of 10PreviousNextLynn X #1Thursday, June 10, 2010 2:46:53 AM

Quote from your article! Headline!

How Wall Street stokes populist fury Record levels of income inequality contribute to the sour mood of the citizenry. Brushing off responsibility for the excesses of the bubble doesn't help.

You are certainly right here. The average man or woman has had very little influence on anything, but I wouldn't count their influence out because they still have the right to vote.

Lynn X

ReplyReport AbusebgDog #2Thursday, June 10, 2010 6:55:28 AMgood article. I think after Madoff,Goldman,Lehman,Moodys,Buffet many people are starting to realize that the game is rigged by crooks. We all work hard and the wallstreet crooks rig the game and then ask for bailouts when they screw it up.Goldman sold sh__t and Blankfein and Buffet said that is business as usual.Most normal people dont think that way.Snakeoil salesmen further the game with being shills for the crooks and it adds up to distrust.If the SEC and FINRA refuse to do their jobs a generation of investors will quit the market and the crooks will choke on their own sh__t.ReplyReport Abusertay6xj #3Thursday, June 10, 2010 8:33:17 AMwhere was "Carrie" when you had all of the vultures in one room?ReplyReport AbuseAl100 #4Thursday, June 10, 2010 9:10:18 AM

I think we have to realize, again, that the average person is by nature selfish and unsympathetic to their fellow man and these types tend to concentrate on wall street and in corporation boardrooms.

However, I have always been puzzled by the reluctance of the average man to support regulation that benefits the middle class even in the face of personal economic ruin. I can only surmise that the powerful have completely brainwashed the middle class or that every person thinks that they will become one of the elite.

One thing I know for sure is that the elites in this country will not give up their power easily. I suspect we will become like many Latin American countries which have an extreme disparities in wealth primarily facilitated by corruption. Hopefully I'm wrong.

ReplyReport Abusesr0343_67adljdogj #5Thursday, June 10, 2010 10:18:35 AMWall Street is mad because they haven't made much money this year and the average American is mad because they are making less money. Isn't our financial system modeled on exponential growth of money? Exponential growth always reaches a limit. Money is just our accounting method for real resources and real resources are finite. So, perhaps we have reached the limit of fiat money.ReplyReport Abusealinator #6Thursday, June 10, 2010 11:02:02 AM@Lynn X, if you think your right to vote has any sway at all these days, think again. It used to be that your congress person would know you by name. Now they no longer represent you, but a massive, nameless, faceless, collective. You're a gnat spitting into a hurricane. Moreover, no matter how you vote, the bankers still win. See, they create our currency for us. If they deflate the currency or there's a money panic (recession), people can't pay their bills and the bankers then own your property. If they inflate the currency (see the roaring 20's which created the depression as well as the roaring 90's and 2000's) they get interest on every single dollar that flows through the economy plus all the dollars that don't exist that they loan out anyways. Your vote means NOTHING.ReplyReport AbuseEleanoreRigby #7Thursday, June 10, 2010 11:40:27 AM

LynnX...Correction...Had the right to vote. Tell me how your government influence as a single voter with a single vote will compare to the CEO who gets to vote as a corporation and a single voter? Two votes to your one. Worse, the Supreme Court is in the pockets of politicians. This country has not had a Supreme Court that wasn't politicized since Eisenhower. If you want to know what's wrong with this plutocracy the rich are creating to control the masses, it's ideology: Me First, You Last and Who Cares Unless there's a dollar sign attached.

Anyone who wants to compare communism to the Johnny Jumps Ups who straggle with Big Money with aspirations of monetary grandeur are leading the country away from power for the people, by the people and of the people to power for the money, by the money and of the money. That's plutocracy and it's only taken a few decades for obscene wealth to achieve their goal.

ReplyReport AbuseEleanoreRigby #8Thursday, June 10, 2010 11:43:13 AMThe Wall Street landfill is piled with money. Then, when it's in jeopardy, they come to us for bailouts. We have at least 5 generations who'll pay for Blankfein and thugs like him to rip us off. His attitude is no different than Madoff, who from prison, flipped the bird at his victims. Isn't that what Ken Lay did too? These guys know there's no punishment for blatant extortion. And, anyone who thinks what they do isn't extortion, just try it at home and see how fast you'd end up where they never will.ReplyReport AbuseSteveJJ #9Thursday, June 10, 2010 12:39:19 PM

Pull your money out of the rotten apple if you're that mad folks! I heard 65% of us have our retirements parked there!! Invest locally!! Also, progressives in gov pushed banking into relaxing home loans and these financial leaders are still leading!! (B. Frank, etc)

ReplyReport Abusebls__bls1962 #10Thursday, June 10, 2010 2:15:42 PMAlso, progressives in gov pushed banking into relaxing home loans and these financial leaders are still leading!! (B. Frank, etc)

I continue to see this and I continue to be amazed at the selective memories of some people.

Pretty much everyone was for expanding homeownership. Bush's "American Dream Down payment Initiative" (signed into Law Dec 16, 2003) was designed to increase homeownership, especially among low income.

Then consider-- In 2001, less than 1% of home mortgages were "interest only" or "Option payment" mortgages. By 2006, that was up to 29%-- almost one in three. How, may I ask, did the "progressives (B. Frank, etc)" manage to push banking into making bad loans when there was

-- Republican House

-- Republican Senate

-- Republican President

???

Yes, there was groundwork laid down for years-- but to blame it all on the "progressives"--- sorry, but it just ain't so...

http://www.usatoday.com/money/economy/housing/2008-12-12-homeprices_N.htm

ReplyReport Abuse1 - 10 of 10PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/Extra/how-wall-street-stokes-populist-fury.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*