Wow, Main Street Really Has No Clue What Wall Street Does
by Courtney Comstock on Aug 14, 2011, 10:33 AM
When President Obama says tax breaks for best selling book authors and hedge fund managers are contributing to the high national debt in speeches about the debt ceiling and the anemic recovery, this is why it’s really bad.
Check out what this article says about job creation and Wall Street:
In 2008, two hedge fund managers, John Paulson and George Soros, earned $4 billion and $3 billion respectively. In 2009, the five largest Wall Street financial institutions paid out $140 billion in bonuses while one in six Americans was unemployed. When the financial crisis was at its peak, those firms held $14 trillion in debt, including $11 trillion in speculative real estate mortgages. The U.S. GDP is $17 trillion.
This is not a clarion call for class warfare, but I hope it helps explain the difficulty in creating jobs. None of the trillions of dollars wagered by Wall Street was used to create new companies, expand markets, spur innovation or establish long-term stability in the financial sector. When so few companies control so much money so irresponsibly, jobs become secondary.
The bolded sentence is not true.
Wall Street provides loans to create new companies, and it expands markets. For example, Wall Street is why the securitization of mortgages, which allows more Americans to take out mortgages and live in houses they couldn’t otherwise afford, took off. In the 1980s, mortgage securitization became a multi trillion dollar industry, offering many new jobs.
Lloyd Blankfein explained in his testimony before the Senate in 2010 some of what Wall Street in general does. He was talking specifically about Goldman Sachs, which loans to small businesses much less than banks like JPMorgan Chase and Citigroup.
- We help governments raise capital to fund schools and roads.
- We advise companies and provide them funds to invest in their growth.
- We work with pension funds, labor unions and university endowments to help build and secure their assets for generations to come.
- We connect buyers and sellers in the securities markets, contributing to the liquidity and vitality of our financial system.
No wonder people on Wall Street feel that President Obama is engaging in class warfare and speak out against it, like when hedge fund manager Dan Loeb wrote recently, “President Obama has yet to speak to Americans as adults, insisting instead on his preferred technique — stirring up class warfare.”
The information is readily available, and after the financial crisis, it’s something everyone should have learned by now, but Main Street has no clue what Wall Street does.
So when Obama says in speeches that tax breaks for best selling book authors and hedge fund managers are contributing to the high national debt in speeches about the debt ceiling and the anemic recovery (before that his target was bankers getting bonuses), Main Street hears it, has no clue that it’s just rhetoric and a total exaggeration, and gets angry.
While many on Main Street still have the misconception that Wall Street does nothing to create jobs, expand markets, etc, it’s irresponsible to use generic anti-Wall Street rhetoric to point the finger at them for contributing to the anemic recovery.
It’s perpetuating the us vs them mentality, keeping Main Street angry at Wall Street, and misinforming them about the causes and possible solutions for economic growth.