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Why Wall Street Matters
A timely, counterintuitive defense of Wall Street and the big banks as the invisible—albeit flawed—engines that power our ideas, and should be made to work better for all of us
Maybe you think the banks should be broken up and the bankers should be held accountable for the financial crisis in 2008. Maybe you hate the greed of Wall Street but know that it’s important to the proper functioning of the world economy. Maybe you don’t really understand Wall Street, and phrases such as “credit default swap” make your eyes glaze over. Maybe you are utterly confused by the fact that after attacking Wall Street mercilessly during his campaign, Donald Trump has surrounded himself with Wall Street veterans. But if you like your smart phone or your widescreen TV, your car or your morning bacon, your pension or your 401(k), then—whether you know it or not—you are a fan of Wall Street.
William D. Cohan is no knee-jerk advocate for Wall Street and the big banks. He’s one of America’s most respected financial journalists and the progressive bestselling author of House of Cards. He has long been critical of the bad behavior that plagued much of Wall Street in the years leading up to the 2008 financial crisis, and because he spent seventeen years as an investment banker on Wall Street, he is an expert on its inner workings as well.
But in recent years he’s become alarmed by the cheap shots and ceaseless vitriol directed at Wall Street’s bankers, traders, and executives—the people whose job it is to provide capital to those who need it, the grease that keeps our economy humming. In this brisk, no-nonsense narrative, Cohan reminds us of the good these institutions do—and the dire consequences for us all if the essential role they play in making our lives better is carelessly curtailed.
Praise for William D. Cohan
“Cohan writes with an insider’s knowledge of the workings of Wall Street, a reporter’s investigative instincts and a natural storyteller’s narrative command.” —The New York Times
“[Cohan is] one of our most able financial journalists.” —Los Angeles Times
“A former Wall Street man and a talented writer, [Cohan] has the rare gift not only of understanding the fiendishly complicated goings-on, but also of being able to explain them in terms the lay reader can grasp.” — The Observer (London)
Maybe you think the banks should be broken up and the bankers should be held accountable for the financial crisis in 2008. Maybe you hate the greed of Wall Street but know that it’s important to the proper functioning of the world economy. Maybe you don’t really understand Wall Street, and phrases such as “credit default swap” make your eyes glaze over. Maybe you are utterly confused by the fact that after attacking Wall Street mercilessly during his campaign, Donald Trump has surrounded himself with Wall Street veterans. But if you like your smart phone or your widescreen TV, your car or your morning bacon, your pension or your 401(k), then—whether you know it or not—you are a fan of Wall Street.
William D. Cohan is no knee-jerk advocate for Wall Street and the big banks. He’s one of America’s most respected financial journalists and the progressive bestselling author of House of Cards. He has long been critical of the bad behavior that plagued much of Wall Street in the years leading up to the 2008 financial crisis, and because he spent seventeen years as an investment banker on Wall Street, he is an expert on its inner workings as well.
But in recent years he’s become alarmed by the cheap shots and ceaseless vitriol directed at Wall Street’s bankers, traders, and executives—the people whose job it is to provide capital to those who need it, the grease that keeps our economy humming. In this brisk, no-nonsense narrative, Cohan reminds us of the good these institutions do—and the dire consequences for us all if the essential role they play in making our lives better is carelessly curtailed.
Praise for William D. Cohan
“Cohan writes with an insider’s knowledge of the workings of Wall Street, a reporter’s investigative instincts and a natural storyteller’s narrative command.” —The New York Times
“[Cohan is] one of our most able financial journalists.” —Los Angeles Times
“A former Wall Street man and a talented writer, [Cohan] has the rare gift not only of understanding the fiendishly complicated goings-on, but also of being able to explain them in terms the lay reader can grasp.” — The Observer (London)
192 pages, Hardcover
First published February 28, 2017
58 people are currently reading
587 people want to read
About the author
William D. Cohan
10 books183 followersWilliam David Cohan (born February 20, 1960) is an American business writer. He has written three books about business and economics and is a contributing editor at Vanity Fair.
Prior to becoming a journalist, he worked on Wall Street for seventeen years. He spent six years at Lazard Frères in New York, then Merrill Lynch & Co., and later became a managing director at JP Morgan Chase. He also worked for two years at GE Capital. Cohan is a graduate of Duke University, Columbia University School of Journalism, and Columbia University Graduate School of Business.
Cohan was born in Worcester, Massachusetts on February 20, 1960. His father was an accountant and his mother worked in administration.
In 1991 he married editor Deborah Gail Futter in a Jewish ceremony.
In 2007, he published The Last Tycoons The Secret History of Lazard Frères Co., about Lazard Frères. It won the 2007 Financial Times and Goldman Sachs Business Book of the Year Award.
His book House of Cards A Tale of Hubris and Wretched Excess on Wall Street, describing the last days of Bear Stearns & Co., was published in March 2009. The book has received excellent reviews and was described as a "masterfully reported account" by Tim Rutten in The Los Angeles Times. It remained on the New York Times Bestseller list for several months.
In an op-ed article in the New York Times, Cohan said in March 2009 that Bear Stearns CEO Alan Schwartz and Lehman CEO Dick Fuld had engaged in a "tsunami of excuses" when they were responsible for their firms' collapse. In another op-ed written with Sandy B. Lewis in June 2009 he said that the current economic crisis is not over yet, and that "many of the fixes that the Obama administration has proposed will do little to address them and may make them worse."
His 2011 book, Money and Power How Goldman Sachs Came to Rule the World, examines the historical role and influence of Goldman Sachs.
His new book, The Price of Silence The Duke Lacrosse Scandal the Power of the Elite and the Corruption of Our Great Universities, about the story of the Duke lacrosse case, was published in 2014 by Scribner.
Prior to becoming a journalist, he worked on Wall Street for seventeen years. He spent six years at Lazard Frères in New York, then Merrill Lynch & Co., and later became a managing director at JP Morgan Chase. He also worked for two years at GE Capital. Cohan is a graduate of Duke University, Columbia University School of Journalism, and Columbia University Graduate School of Business.
Cohan was born in Worcester, Massachusetts on February 20, 1960. His father was an accountant and his mother worked in administration.
In 1991 he married editor Deborah Gail Futter in a Jewish ceremony.
In 2007, he published The Last Tycoons The Secret History of Lazard Frères Co., about Lazard Frères. It won the 2007 Financial Times and Goldman Sachs Business Book of the Year Award.
His book House of Cards A Tale of Hubris and Wretched Excess on Wall Street, describing the last days of Bear Stearns & Co., was published in March 2009. The book has received excellent reviews and was described as a "masterfully reported account" by Tim Rutten in The Los Angeles Times. It remained on the New York Times Bestseller list for several months.
In an op-ed article in the New York Times, Cohan said in March 2009 that Bear Stearns CEO Alan Schwartz and Lehman CEO Dick Fuld had engaged in a "tsunami of excuses" when they were responsible for their firms' collapse. In another op-ed written with Sandy B. Lewis in June 2009 he said that the current economic crisis is not over yet, and that "many of the fixes that the Obama administration has proposed will do little to address them and may make them worse."
His 2011 book, Money and Power How Goldman Sachs Came to Rule the World, examines the historical role and influence of Goldman Sachs.
His new book, The Price of Silence The Duke Lacrosse Scandal the Power of the Elite and the Corruption of Our Great Universities, about the story of the Duke lacrosse case, was published in 2014 by Scribner.
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November 16, 2017
There's a lot of pro-capitalist ranting in this book. There's even some name-calling. It's hardly a scholarly or objective work. It is, however, a succinct but superficial overview of banking and Wall Street. It reminds us (repeatedly) of the legitimate purpose of banks—saving and lending money. I doubt many people would claim otherwise. What most, including myself, are upset about are the abuses, the clever manipulations, the deceptions—what amount to high stakes versions of shell games and pyramid schemes, and of course, the impact of all these on people who may not even realize they're in the game.
The root cause of all of these, Cohan claims, is that when investment banks went public (starting in 1970 with the IPO of DLJ), investment bankers could make big personal profits without much personal financial risk. As many have pointed out before, this allows them to privatize gains and socialize losses. "When people are rewarded to take big risks with other people's money, that's exactly what they will do. The problem is that the top bankers, traders, and executives on Wall Street collectively no longer have enough of their own skin in the game to make a difference to them when the things they do go awry. They get rich either way." (page 114) That, he says, is pretty much the only problem. Don't blame Wall Street per se, the problem is a system that shields those making unwise, even knowingly bad loans from the consequences. Worse, it rewards them for it.
Well, maybe. This definitely is a problem. He doesn't believe the solution is financial regulation, though. He's clearly opposed to such things. "The fix for Wall Street should be directed at its compensation system, not at the functioning of Wall Street itself. It's really as simple as that. Fix the compensation system—make bankers, traders, and executives fear for their art collections, their co-ops, and their homes in the Hamptons—and sit back and watch how quickly it works to change people's bad behavior." (page 146) As simple as that, huh? It doesn't sound simple to me. There are a lot of people, people with power, people with influence, people with heaps of money, who are getting more of all of the above through this system. They're going to resist attempts to stop this gravy train. I certainly don't see them doing it voluntarily.
I disagree with much of what Cohan is saying in this book, including a couple of his underlying but unstated assumptions (concerning the 'value' of money and the desirability of perpetual economic growth). I do, however, agree that those who make risky investments must be held responsible for their actions. There is no prudence if there are no consequences.
The root cause of all of these, Cohan claims, is that when investment banks went public (starting in 1970 with the IPO of DLJ), investment bankers could make big personal profits without much personal financial risk. As many have pointed out before, this allows them to privatize gains and socialize losses. "When people are rewarded to take big risks with other people's money, that's exactly what they will do. The problem is that the top bankers, traders, and executives on Wall Street collectively no longer have enough of their own skin in the game to make a difference to them when the things they do go awry. They get rich either way." (page 114) That, he says, is pretty much the only problem. Don't blame Wall Street per se, the problem is a system that shields those making unwise, even knowingly bad loans from the consequences. Worse, it rewards them for it.
Well, maybe. This definitely is a problem. He doesn't believe the solution is financial regulation, though. He's clearly opposed to such things. "The fix for Wall Street should be directed at its compensation system, not at the functioning of Wall Street itself. It's really as simple as that. Fix the compensation system—make bankers, traders, and executives fear for their art collections, their co-ops, and their homes in the Hamptons—and sit back and watch how quickly it works to change people's bad behavior." (page 146) As simple as that, huh? It doesn't sound simple to me. There are a lot of people, people with power, people with influence, people with heaps of money, who are getting more of all of the above through this system. They're going to resist attempts to stop this gravy train. I certainly don't see them doing it voluntarily.
I disagree with much of what Cohan is saying in this book, including a couple of his underlying but unstated assumptions (concerning the 'value' of money and the desirability of perpetual economic growth). I do, however, agree that those who make risky investments must be held responsible for their actions. There is no prudence if there are no consequences.
June 13, 2017
I like to fancy myself someone who reads across the political spectrum. So a book called "Why Wall Street Matters" drew my interest when I saw it featured on a list of short books that pack big ideas. Although the review was tepid (or worse), I wanted to read an argument defending the much pilloried heart of finance in America.
In its pages, I found some interesting history but mostly a dearth of evidence or reporting on its central question. Wall Street democratizes capital, creates liquidity in markets, and is the engine of economic growth. Cohan also concedes that it isn't perfect. But instead of diving into the nuances of the debate on regulation versus freedom, Cohan mostly repeats his attacks on people like Senator Elizabeth Warren and his accolades of Wall Street insiders. This sort of thing, which reminded me of Cable News, is not very compelling to me. I don't think any serious person contends that Wall Street is unnecessary. But no serious person also contends that it works perfectly. His final claim that the small but impactful change in incentive structures for Wall Street employees feels incomplete.
Because it was a quick read, I didn't mind much finishing this book. But I was left unimpressed with his take on the topic. This is a massively interesting question. This industry has an outsized impact on our politics. It is given an unsatisfying treatment in this book.
In its pages, I found some interesting history but mostly a dearth of evidence or reporting on its central question. Wall Street democratizes capital, creates liquidity in markets, and is the engine of economic growth. Cohan also concedes that it isn't perfect. But instead of diving into the nuances of the debate on regulation versus freedom, Cohan mostly repeats his attacks on people like Senator Elizabeth Warren and his accolades of Wall Street insiders. This sort of thing, which reminded me of Cable News, is not very compelling to me. I don't think any serious person contends that Wall Street is unnecessary. But no serious person also contends that it works perfectly. His final claim that the small but impactful change in incentive structures for Wall Street employees feels incomplete.
Because it was a quick read, I didn't mind much finishing this book. But I was left unimpressed with his take on the topic. This is a massively interesting question. This industry has an outsized impact on our politics. It is given an unsatisfying treatment in this book.
August 1, 2017
The first thing that struck me about this book was the title: “Why Wall Street Matters.” Who doesn’t agree with that?
The Occupy Movement, however much author William D Cohan probably disagrees with their rhetoric, wouldn’t for an instant say Wall Street doesn’t matter. Neither would Elizabeth Warren, John McCain or Bernie Sanders, politicians he routinely dismisses as bumbling and inept when it comes to financial reform. Even Donald Trump would probably raise an eyebrow at the presumption that we need to be reminded about America’s financial “spinal column,” as Hillary Clinton labeled it in one of her infamous Goldman Sachs speeches. And yet, whoever this book is for apparently doesn’t know that America is capitalist (at least, in theory), or that Wall Street serves this capitalism.
Let me go further and postulate that Cohan’s ideal reader seems to be someone who hates Wall Street. Really, really hates it. Like, wants to see it pulled apart, brick by metaphorical brick. Like, would be happy to have no big banks, no hedge funds, no securities trading. His ideal reader has no idea what these things actually are, nor does his reader understand how important and necessary Wall Street really is to the 21st century. Indeed, the way he tells it, criticism of Wall Street has simply gone too far. We've been “demonizing” them for years, he argues, and that’s not going to get anything constructive done. We need Wall Street, because otherwise, we’d be totally screwed. “(Senators Sanders and Warren) haven’t a clue when it comes to understanding Wall Street,” he admonishes early in the book. “They, and the very people who call for breaking up the banks, wouldn’t want to live in the world without those very banks, even if their rhetoric implies that they would. Nor would the people they claim to speak for—millions of middle-class and working-class Americans—want to live in that world, either. And if our most powerful elected leaders are woefully undereducated about the importance of Wall Street and the role that it play in keeping our economy humming, well, then, it’s not the least bit surprising that the American people have virtually no clue about how Wall Street works either.”
Cohan is quick to point out that he agrees with much of the progressive agenda, and his most forceful prescription for “fixing” Wall Street is to do away with the perverse incentives bankers have to take excessive, ill-considered gambles with other people’s money. The bonus system has to go as well. But most of the book is devoted to a brief (but interesting) history of Wall Street and financial crises and a contemptuous brushoff of Washington’s regulatory actions. Dodd-Frank has got to go, he declares, because it is too cumbersome and thwarts economic growth. Ditto efforts to reinstate Glass-Steagall. Ditto all the regulatory mechanisms and agents littering the financial sector. Ditto higher capital requirements and efforts to “break up the banks.” Cohan argues that this wouldn’t prevent another crisis—indeed, nothing can prevent another financial crisis, since there will be one “somewhere at some point whether you obliterate Wall Street or not.” Besides, if we get rid of Wall Street, we’d be miserable. We wouldn’t have iPhones and cheeseburgers today without it, and you like your iPhone, don’t you? Of course you do. So enough with all of this nonsense.
I’m not exaggerating the tone by much here. Cohan keeps throwing up the straw man of the angry, disaffected but entirely ignorant hater and then switches to a glorification of modern day capitalism, over and over again. It’s frustrating because I don’t think he means all of this the way it sounds—it sounds like an apologia for the philosophy behind Wall Street’s utterly boneheaded wrongdoings that tanked our economy. His enthymemes are consistently one part “Look, I hear you” and two parts “but still, we need these guys for the life we live.”
For example, about halfway through the book, Cohan discusses the current political climate concerning the financial sector:
Got that? Good, because I have a few questions for Mr. Cohan here:
1) Do you think I have amnesia, or do you think I’m a complete imbecile? Like I didn’t know about the bailout already? Like you need to remind me that it actually happened two or three times in one paragraph?
2) Arguing that the FDIC was set up for bailouts, “so what are you so angry about?” completely misses the point. The fire department was set up to put out fires. If all my neighbors torch their homes smoking in bed and I get pissed off that the fire department has to keep coming to my neighborhood to put them all out, don't sit on your own stoop saying "What are you so mad about? That's what fire departments are for."
3) Do you truly think Wall Street would have collasped, absent a bailout? I only ask because a few chapters later, you report extensively on hedge fund manager John Fichthorn and transcribe his rage about Daniel Tarullo, the Fed's chief regulator, for two pages. "He told me that Tarullo and the other regulators at the Fed share a maniacal belief that the financial system would not have survived the 2008 financial crisis without a federal bailout,” you tell us. Ok, so did Fichthorn know you also think that? Or do you actually agree with Fichthorn? And if so, why did we bail them out in 2008 if we would have been fine anyway? Which is it going to be: the nanny state or the Wild West? And does this line of questioning maybe help you understand that my anger over the bailouts might not be solely out of ignorance of the system itself?
It’s often what Cohan doesn’t say in this book that’s even more interesting. He seems to think we, the public, need to be informed that banks lend capital out so others can invest it for businesses, home loans and the like, but he dismissively discusses MBSs and CDS instruments like we all studied it at Harvard Business already. He bitches about what regulation has done to LIBOR, but doesn’t say a word about the LIBOR interst rate-fixing scandal which cost us all money in the long run. He would have been much better off extending his discussion of the Federal Reserve, an entity that many Americans truly are ignorant of, and one which most of us (myself included) can’t explain the function of satisfactorily, except Cohan cuts this discussion short and pivots to an exposition of several lunatics’ attempts to blow it up in the nineteenth and early twentieth centuries. I guess we can all grasp the point there: Watch out for anti-Wall Street protestors, or it’s your life.
If you go by this book, Wall Street has been crippled and under attack at least since the Great Recession; all the regulation has led to slow growth (at one point, Cohan hyperbolizes and claims “zero” growth, but let that pass), bankers too scared to lend capital and help ordinary people thrive or get mortgages, and maybe even a public too scared-stupid to not vote for Donald Trump. The solution, according to him, is to get off all the bankers’ backs and let them go to work, after we reform the incentive system, although (and here, you can hear the thud as he drops the ball) there doesn’t seem to be any appetite for doing this in the industry, and our politicians can’t be trusted to understand any of this anyway, and besides, you wouldn’t want to live without Wall Street, would you? IPhones, remember? IPhones.
I call bullshit. No one, absolutely no one, is arguing for dissolving the financial system. (No one credible, anyway.) No one is arguing we dismantle capitalism and take us back to the Stone Age, like he claims, or the Middle Ages, like one of his sources claims (as if, absent mortgage backed securities, we’d all go back to drinking out of our sewage system or something). And if breaking up the big banks is totally pointless and won’t do any good, Cohan is going to have to write a followup book arguing this point more effectively. As has been pointed out before, big banks are powerful banks and can stand against any government that has the audacity to demand more responsible behavior. That’s a problem, and it’s one that he all but ignores here.
He also ignores the greater context of the twenty-first century. All this anger and outrage has not stemmed from total ignorance. In too many parts of the book, Cohan’s gaze is myopically towards Wall Street itself and the people who work in it (many of whom, I don’t doubt, are as honest and hardworking as he says they are), as opposed to the American public which he simultaneously attempts to reassure and patronize. I didn’t see any interviews with small-time business owners or parents trying to put their kids through college where they’d get a chance to explain this fear of investing he talks about, but I did see three pages towards end of the book devoted to comments from an unnamed "Wall Street executive" condemning regulation and arguing (for like the third time in the book overall) that the Fed's bailout of Wall Street was what the Fed was established to do, and that the government made a $15.3 billion profit on the bailout. "It's probably the only government program in history where it actually made a profit,” this unnamed genius tells him.
Ok. Great. I mean, I’m pretty sure government programs led to piddly things like jet planes, fiber optics and the Internet, but whatever, the bailout made Uncle Sam some cheddar, that’s wonderful.
Still, let's not gloss over the fact that the Fed bailed out Wall Street. It did not bail out at an equivalent level the homeowners and investors (you know, people) who got screwed by the crisis. It was supposed to (remember Neil Barofsky? He gave it a go), but the minute there was talk of that $20 billion or so of TARP funds going to homeowners so they could stay in their homes and make their mortgage payments, boom, you had Rick Santelli's epic meltdown on CNBC and the birth of the Tea Party, which led to further polarization in our media and politics and which probably did help lead to the election of Donald Trump. I personally lost tens of thousands of dollars in the crash, and over the years, as a result of owning property I've been unable to sell, I don’t even want to guess how much more I lost. And I got off lucky—other people lost homes, lost jobs, sometimes even lost their lives.
Meanwhile, the big banks are bigger than ever, they’re richer than ever, their alumni were working in the White House under Obama and now even more so under Trump, nobody went to jail and by all accounts they’re back to subprime loans, robosigning and God knows what else while the rest of us work our 50 hours a week with a wary eye on our earnings reports, dreaming of a retirement we probably won’t be able to afford.
So I don't want to hear a goddam word about the poor Wall Street bankers so “demonized” by meddling politicians and regulators and how we're "condemned to zero percent growth" by intrusive policies. America is still angry at Wall Street, and brushing off our concerns like this only makes us angrier. We don't look at Dodd Frank and say "Oh no, J.P. Morgan needs to raise more liquidity than they want to; I can't invest!" We look at our bank accounts and holdings and go "Oh shit, what if those lunatics crash the economy again?" and decide not to do anything. Time for Wall Street to do some public relations of its own and explain what it’s doing to protect us from itself. If the world of high finance is too opaque, as Cohan says, then let some sunlight in.
Yes, I like my iPhone. I still hate Goldman Sachs. Convince me I shouldn’t.
The Occupy Movement, however much author William D Cohan probably disagrees with their rhetoric, wouldn’t for an instant say Wall Street doesn’t matter. Neither would Elizabeth Warren, John McCain or Bernie Sanders, politicians he routinely dismisses as bumbling and inept when it comes to financial reform. Even Donald Trump would probably raise an eyebrow at the presumption that we need to be reminded about America’s financial “spinal column,” as Hillary Clinton labeled it in one of her infamous Goldman Sachs speeches. And yet, whoever this book is for apparently doesn’t know that America is capitalist (at least, in theory), or that Wall Street serves this capitalism.
Let me go further and postulate that Cohan’s ideal reader seems to be someone who hates Wall Street. Really, really hates it. Like, wants to see it pulled apart, brick by metaphorical brick. Like, would be happy to have no big banks, no hedge funds, no securities trading. His ideal reader has no idea what these things actually are, nor does his reader understand how important and necessary Wall Street really is to the 21st century. Indeed, the way he tells it, criticism of Wall Street has simply gone too far. We've been “demonizing” them for years, he argues, and that’s not going to get anything constructive done. We need Wall Street, because otherwise, we’d be totally screwed. “(Senators Sanders and Warren) haven’t a clue when it comes to understanding Wall Street,” he admonishes early in the book. “They, and the very people who call for breaking up the banks, wouldn’t want to live in the world without those very banks, even if their rhetoric implies that they would. Nor would the people they claim to speak for—millions of middle-class and working-class Americans—want to live in that world, either. And if our most powerful elected leaders are woefully undereducated about the importance of Wall Street and the role that it play in keeping our economy humming, well, then, it’s not the least bit surprising that the American people have virtually no clue about how Wall Street works either.”
Cohan is quick to point out that he agrees with much of the progressive agenda, and his most forceful prescription for “fixing” Wall Street is to do away with the perverse incentives bankers have to take excessive, ill-considered gambles with other people’s money. The bonus system has to go as well. But most of the book is devoted to a brief (but interesting) history of Wall Street and financial crises and a contemptuous brushoff of Washington’s regulatory actions. Dodd-Frank has got to go, he declares, because it is too cumbersome and thwarts economic growth. Ditto efforts to reinstate Glass-Steagall. Ditto all the regulatory mechanisms and agents littering the financial sector. Ditto higher capital requirements and efforts to “break up the banks.” Cohan argues that this wouldn’t prevent another crisis—indeed, nothing can prevent another financial crisis, since there will be one “somewhere at some point whether you obliterate Wall Street or not.” Besides, if we get rid of Wall Street, we’d be miserable. We wouldn’t have iPhones and cheeseburgers today without it, and you like your iPhone, don’t you? Of course you do. So enough with all of this nonsense.
I’m not exaggerating the tone by much here. Cohan keeps throwing up the straw man of the angry, disaffected but entirely ignorant hater and then switches to a glorification of modern day capitalism, over and over again. It’s frustrating because I don’t think he means all of this the way it sounds—it sounds like an apologia for the philosophy behind Wall Street’s utterly boneheaded wrongdoings that tanked our economy. His enthymemes are consistently one part “Look, I hear you” and two parts “but still, we need these guys for the life we live.”
For example, about halfway through the book, Cohan discusses the current political climate concerning the financial sector:
"The 2008 bailouts of Wall Street left the American people fuming. But should they have been so upset? Would it have been better to have Wall Street collapse completely, with one leading firm after another cascading into bankruptcy and then somehow emerging in new forms, free from worthless assets and from financial obligations owed to others?...It's impossible, of course, to try to surmise what would have happened...because the Fed and the Treasury did bail out Wall Street in 2008. And by the way, though people may forget, that is exactly why the Federal Reserve was set up in the first place a century earlier: to bail out Wall Street if needed and to save capitalism from itself, the seeds of its own destruction having been sown from the start..."
Got that? Good, because I have a few questions for Mr. Cohan here:
1) Do you think I have amnesia, or do you think I’m a complete imbecile? Like I didn’t know about the bailout already? Like you need to remind me that it actually happened two or three times in one paragraph?
2) Arguing that the FDIC was set up for bailouts, “so what are you so angry about?” completely misses the point. The fire department was set up to put out fires. If all my neighbors torch their homes smoking in bed and I get pissed off that the fire department has to keep coming to my neighborhood to put them all out, don't sit on your own stoop saying "What are you so mad about? That's what fire departments are for."
3) Do you truly think Wall Street would have collasped, absent a bailout? I only ask because a few chapters later, you report extensively on hedge fund manager John Fichthorn and transcribe his rage about Daniel Tarullo, the Fed's chief regulator, for two pages. "He told me that Tarullo and the other regulators at the Fed share a maniacal belief that the financial system would not have survived the 2008 financial crisis without a federal bailout,” you tell us. Ok, so did Fichthorn know you also think that? Or do you actually agree with Fichthorn? And if so, why did we bail them out in 2008 if we would have been fine anyway? Which is it going to be: the nanny state or the Wild West? And does this line of questioning maybe help you understand that my anger over the bailouts might not be solely out of ignorance of the system itself?
It’s often what Cohan doesn’t say in this book that’s even more interesting. He seems to think we, the public, need to be informed that banks lend capital out so others can invest it for businesses, home loans and the like, but he dismissively discusses MBSs and CDS instruments like we all studied it at Harvard Business already. He bitches about what regulation has done to LIBOR, but doesn’t say a word about the LIBOR interst rate-fixing scandal which cost us all money in the long run. He would have been much better off extending his discussion of the Federal Reserve, an entity that many Americans truly are ignorant of, and one which most of us (myself included) can’t explain the function of satisfactorily, except Cohan cuts this discussion short and pivots to an exposition of several lunatics’ attempts to blow it up in the nineteenth and early twentieth centuries. I guess we can all grasp the point there: Watch out for anti-Wall Street protestors, or it’s your life.
If you go by this book, Wall Street has been crippled and under attack at least since the Great Recession; all the regulation has led to slow growth (at one point, Cohan hyperbolizes and claims “zero” growth, but let that pass), bankers too scared to lend capital and help ordinary people thrive or get mortgages, and maybe even a public too scared-stupid to not vote for Donald Trump. The solution, according to him, is to get off all the bankers’ backs and let them go to work, after we reform the incentive system, although (and here, you can hear the thud as he drops the ball) there doesn’t seem to be any appetite for doing this in the industry, and our politicians can’t be trusted to understand any of this anyway, and besides, you wouldn’t want to live without Wall Street, would you? IPhones, remember? IPhones.
I call bullshit. No one, absolutely no one, is arguing for dissolving the financial system. (No one credible, anyway.) No one is arguing we dismantle capitalism and take us back to the Stone Age, like he claims, or the Middle Ages, like one of his sources claims (as if, absent mortgage backed securities, we’d all go back to drinking out of our sewage system or something). And if breaking up the big banks is totally pointless and won’t do any good, Cohan is going to have to write a followup book arguing this point more effectively. As has been pointed out before, big banks are powerful banks and can stand against any government that has the audacity to demand more responsible behavior. That’s a problem, and it’s one that he all but ignores here.
He also ignores the greater context of the twenty-first century. All this anger and outrage has not stemmed from total ignorance. In too many parts of the book, Cohan’s gaze is myopically towards Wall Street itself and the people who work in it (many of whom, I don’t doubt, are as honest and hardworking as he says they are), as opposed to the American public which he simultaneously attempts to reassure and patronize. I didn’t see any interviews with small-time business owners or parents trying to put their kids through college where they’d get a chance to explain this fear of investing he talks about, but I did see three pages towards end of the book devoted to comments from an unnamed "Wall Street executive" condemning regulation and arguing (for like the third time in the book overall) that the Fed's bailout of Wall Street was what the Fed was established to do, and that the government made a $15.3 billion profit on the bailout. "It's probably the only government program in history where it actually made a profit,” this unnamed genius tells him.
Ok. Great. I mean, I’m pretty sure government programs led to piddly things like jet planes, fiber optics and the Internet, but whatever, the bailout made Uncle Sam some cheddar, that’s wonderful.
Still, let's not gloss over the fact that the Fed bailed out Wall Street. It did not bail out at an equivalent level the homeowners and investors (you know, people) who got screwed by the crisis. It was supposed to (remember Neil Barofsky? He gave it a go), but the minute there was talk of that $20 billion or so of TARP funds going to homeowners so they could stay in their homes and make their mortgage payments, boom, you had Rick Santelli's epic meltdown on CNBC and the birth of the Tea Party, which led to further polarization in our media and politics and which probably did help lead to the election of Donald Trump. I personally lost tens of thousands of dollars in the crash, and over the years, as a result of owning property I've been unable to sell, I don’t even want to guess how much more I lost. And I got off lucky—other people lost homes, lost jobs, sometimes even lost their lives.
Meanwhile, the big banks are bigger than ever, they’re richer than ever, their alumni were working in the White House under Obama and now even more so under Trump, nobody went to jail and by all accounts they’re back to subprime loans, robosigning and God knows what else while the rest of us work our 50 hours a week with a wary eye on our earnings reports, dreaming of a retirement we probably won’t be able to afford.
So I don't want to hear a goddam word about the poor Wall Street bankers so “demonized” by meddling politicians and regulators and how we're "condemned to zero percent growth" by intrusive policies. America is still angry at Wall Street, and brushing off our concerns like this only makes us angrier. We don't look at Dodd Frank and say "Oh no, J.P. Morgan needs to raise more liquidity than they want to; I can't invest!" We look at our bank accounts and holdings and go "Oh shit, what if those lunatics crash the economy again?" and decide not to do anything. Time for Wall Street to do some public relations of its own and explain what it’s doing to protect us from itself. If the world of high finance is too opaque, as Cohan says, then let some sunlight in.
Yes, I like my iPhone. I still hate Goldman Sachs. Convince me I shouldn’t.
February 15, 2017
We Need To Return Wall Street to Days of Prudent Risk Taking
A funny thing happened whilst I was reading WHY WALL STREET MATTERS. I was partway through a chapter when I suddenly realized, “Hmm, this guy seems to know what he’s talking about.” I stopped reading, and read the author’s bio. At this point, I realized why the story seemed so vivid—it’s because the author has played a “hands-on” role in the industry. As I read more, it became clear that William D. Cohan is an expert in this field. (And of course, a best-selling author as well.) Of course, that doesn’t mean that the reader will agree with everything Cohan writes—but the man knows what he is talking about, and writes with authority.
The theme of this book is the big bank bailout--why it happened, and what we should do to fix it. Here’s the essence of Cohan’s argument: The meltdown was due to a problem in INCENTIVES. In years past, investment bankers had a personal stake in their firm’s investments. So, if the firm made a dumb bet, they would personally pay the price: “The risk taking was designed by its partners to be prudent.”
In recent years, investment banks drastically changed. This led to perverse incentives and risk-taking that would never have occurred before. Now, the bankers began to take huge risks with OTHER PEOPLE’S MONEY. The author likens this to “Swinging for the fences.” Here's one nefarious example: “in 2015 alone—thanks to Milken— nearly $372 billion was raised globally for companies with less-than-stellar credit ratings.”
So, yes, Cohan argues, we need to make changes in banking regulations, but not just more rules—we need to change the INCENTIVES so that bankers have more “skin in the game.” Here’s how Cohan sums it up: “The overarching necessity is to regulate Wall Street in such a way that preserves the things that it does right while also making sure that the people who work there have the correct incentives. . . “ We should be careful, the author argues, before wrecking the world’s most envied banking system, by applying a “fix” that has nothing to do with the crisis.
A really fascinating part of the book is the history of New York banking, and even the “Wall.” I had no idea that Wall Street came from a real wall, “composed of twelve-foot-high wooden logs— that the Dutch inhabitants started building in April 1653, with the help of African slaves.” It was a massive wall-almost half a mile.
To my dismay, I also learned that the New Amsterdam (later renamed New York) colony was “the largest ‘slave-holding city’ in the northern colonies. For fifty-one years, between 1711 and 1762, "Wall Street housed the colony’s well-established slave market. . . At any one time, fifty slaves could be found being bought and sold in the structure.”
Alas, what a tragic part of New York history that we should know about. I wish it wasn’t true, but it is.
The author spends much time explaining how and why the “bailouts” of 2008 happened. Cohan reminds us that the government made money out of the bailout—to the tune of $15.3 billion. I confess I didn’t know that. “The banks that received the billions of dollars in cash infusions from the government not only paid the loans back with interest but also paid billions more to the government. . . “
WHY WALL STREET MATTERS is a well-organized book, and a fairly easy read. You don’t have to be an economist to appreciate this book. My favorite part is the history of Wall Street—especially the infamous “Wall.” I learned a lot about the history of our stock exchange, the U.S. banking system—and even the history of slave trading.
I think Mr. Cohan makes a lot of good points. The author writes very clearly, and makes a strong case for changing the incentives for Wall Street investment banks, to remove the crazy incentives to “swing for the fences.” I’m afraid, however, that the public animus against Wall Street is currently so strong, that the author’s arguments might well be overlooked.
I thought this one sentence summed up the author’s theme: “The fix for Wall Street should be directed at its compensation system, not at the functioning of Wall Street itself. It’s really as simple as that.”
Advance Review Copy courtesy of the publisher.
A funny thing happened whilst I was reading WHY WALL STREET MATTERS. I was partway through a chapter when I suddenly realized, “Hmm, this guy seems to know what he’s talking about.” I stopped reading, and read the author’s bio. At this point, I realized why the story seemed so vivid—it’s because the author has played a “hands-on” role in the industry. As I read more, it became clear that William D. Cohan is an expert in this field. (And of course, a best-selling author as well.) Of course, that doesn’t mean that the reader will agree with everything Cohan writes—but the man knows what he is talking about, and writes with authority.
The theme of this book is the big bank bailout--why it happened, and what we should do to fix it. Here’s the essence of Cohan’s argument: The meltdown was due to a problem in INCENTIVES. In years past, investment bankers had a personal stake in their firm’s investments. So, if the firm made a dumb bet, they would personally pay the price: “The risk taking was designed by its partners to be prudent.”
In recent years, investment banks drastically changed. This led to perverse incentives and risk-taking that would never have occurred before. Now, the bankers began to take huge risks with OTHER PEOPLE’S MONEY. The author likens this to “Swinging for the fences.” Here's one nefarious example: “in 2015 alone—thanks to Milken— nearly $372 billion was raised globally for companies with less-than-stellar credit ratings.”
So, yes, Cohan argues, we need to make changes in banking regulations, but not just more rules—we need to change the INCENTIVES so that bankers have more “skin in the game.” Here’s how Cohan sums it up: “The overarching necessity is to regulate Wall Street in such a way that preserves the things that it does right while also making sure that the people who work there have the correct incentives. . . “ We should be careful, the author argues, before wrecking the world’s most envied banking system, by applying a “fix” that has nothing to do with the crisis.
A really fascinating part of the book is the history of New York banking, and even the “Wall.” I had no idea that Wall Street came from a real wall, “composed of twelve-foot-high wooden logs— that the Dutch inhabitants started building in April 1653, with the help of African slaves.” It was a massive wall-almost half a mile.
To my dismay, I also learned that the New Amsterdam (later renamed New York) colony was “the largest ‘slave-holding city’ in the northern colonies. For fifty-one years, between 1711 and 1762, "Wall Street housed the colony’s well-established slave market. . . At any one time, fifty slaves could be found being bought and sold in the structure.”
Alas, what a tragic part of New York history that we should know about. I wish it wasn’t true, but it is.
The author spends much time explaining how and why the “bailouts” of 2008 happened. Cohan reminds us that the government made money out of the bailout—to the tune of $15.3 billion. I confess I didn’t know that. “The banks that received the billions of dollars in cash infusions from the government not only paid the loans back with interest but also paid billions more to the government. . . “
WHY WALL STREET MATTERS is a well-organized book, and a fairly easy read. You don’t have to be an economist to appreciate this book. My favorite part is the history of Wall Street—especially the infamous “Wall.” I learned a lot about the history of our stock exchange, the U.S. banking system—and even the history of slave trading.
I think Mr. Cohan makes a lot of good points. The author writes very clearly, and makes a strong case for changing the incentives for Wall Street investment banks, to remove the crazy incentives to “swing for the fences.” I’m afraid, however, that the public animus against Wall Street is currently so strong, that the author’s arguments might well be overlooked.
I thought this one sentence summed up the author’s theme: “The fix for Wall Street should be directed at its compensation system, not at the functioning of Wall Street itself. It’s really as simple as that.”
Advance Review Copy courtesy of the publisher.
November 28, 2017
This will not address the argument made by Mr. Cohan, but rather the formatting and content in general. I do not take a position either way as to whether "Wall Street Matters."
1) The first 20% of the book can be lopped off, full stop. I wonder if Mr. Cohan or the editors said "your argument is too short to sell for $x, add some fluff content to make it longer." Thus we have a several-page description of the 1920 Wall Street bombing, down to describing limbs and body parts in the streets, the now-familiar tale of how buildings there still have pockmarks, etc. This is in addition to the description of anarchist attacks on bankers, etc. This is, presumably, all to support the single statement that "Animosity against Wall Street is nothing new." [paraphrased] That's fine, I didn't need 10 pages of filler. Just make the ****ing argument and stop wasting my time. It's not even all that interesting, as I've read it all before, as have most people with a basic working knowledge of WS history.
A history of the actual Wall Street, the wooden wall that protected the Dutch from Native American threat, etc. All this can be scrapped. I came to read an argument, and almost put the book down because, literally, the first 20% of the book is all fluff with no argument, or even an expository statement.
2) Wall Street is both not defined, and at the same time defined in contradiction to an earlier definition. The author asks "What is Wall Street?" and then goes off on a tangent about how it may or may not be just the banks on Wall Street, and how no Wall Street banks still have Wall Street, and then doesn't answer it. Later, by way of a definition, Cohan states that Warren Buffet came in as an outsider to bail out part of Wall Street (a bank), when even later Cohan intimated that Buffet and his type of venture capital investment is part of Wall Street. Poor writing and shabby editing.
3) The title of the book is Why Wall Street Matters. One would, then, expect an argument in the classical sense. Halfway through the book, we hear how Wall Street has been the source of some crises, the solution to others, and has been falsely blamed for yet more. This is good, but the author never explains how this ties in to his theorem. This is just one example of writing without argument.
4) Criticism without data: Cohan uses phrases like "obviously this is wrong," without explaining why. This is a political speech tactic, where the speaker/writer makes an observation, says that obviously this is wrong/right, and lets the listener fill in their own reasons why, which, psychologically speaking, strengthens the listener's stance on the issue because the brain thinks it has come up with the reasons itself. You can then, later in your narrative, give reasons why which, at this point in time, will now support the position the listener has taken. Again, this is a tactic of speechwriters. Sad to see it in a book. "Obviously this would be bad for the American economy," and that is the beginning and end of the argument.
5) Criticism without data 2: Cohan notes that yes, there are behaviors that need to be curbed, and that we should continue to use existing law to prosecute and scare others into compliance. Again, without taking sides in the argument, he says that there are behaviors that are permissible under the current set of laws that should not be, and then says that we should use current laws for enforcement, not install new ones. Forgetting your position on the matter, this is the mark of a weakly-thought-out argument, and in fact is not a cogent argument at all.
5) Criticism without data 3: Related to #2, Cohan notes again and again that the laws proposed in the 114th and 115th Congress would not have prevented the most recent financial crisis. That may be. Cohan does not, however, argue whether the proposed legislation would curb some other ill. It's akin to saying "the new laws on food safety would not have prevented the recent listeria outbreak," while not investigating whether it might help with salmonella in the same industry. Again, forgetting where the reader stands on the legislation mentioned in the book, this is bad logic and a weak argument.
I take no position on the arguments made here. They are often incomplete or contradictory, so it makes little sense to do so.
This is a poorly written book, content aside. And a fifth of it need not even exist. I would bet that, cut down to perhaps 10-15 pages and with another editor, this would make an engaging white paper. As a book, it fails miserably.
1) The first 20% of the book can be lopped off, full stop. I wonder if Mr. Cohan or the editors said "your argument is too short to sell for $x, add some fluff content to make it longer." Thus we have a several-page description of the 1920 Wall Street bombing, down to describing limbs and body parts in the streets, the now-familiar tale of how buildings there still have pockmarks, etc. This is in addition to the description of anarchist attacks on bankers, etc. This is, presumably, all to support the single statement that "Animosity against Wall Street is nothing new." [paraphrased] That's fine, I didn't need 10 pages of filler. Just make the ****ing argument and stop wasting my time. It's not even all that interesting, as I've read it all before, as have most people with a basic working knowledge of WS history.
A history of the actual Wall Street, the wooden wall that protected the Dutch from Native American threat, etc. All this can be scrapped. I came to read an argument, and almost put the book down because, literally, the first 20% of the book is all fluff with no argument, or even an expository statement.
2) Wall Street is both not defined, and at the same time defined in contradiction to an earlier definition. The author asks "What is Wall Street?" and then goes off on a tangent about how it may or may not be just the banks on Wall Street, and how no Wall Street banks still have Wall Street, and then doesn't answer it. Later, by way of a definition, Cohan states that Warren Buffet came in as an outsider to bail out part of Wall Street (a bank), when even later Cohan intimated that Buffet and his type of venture capital investment is part of Wall Street. Poor writing and shabby editing.
3) The title of the book is Why Wall Street Matters. One would, then, expect an argument in the classical sense. Halfway through the book, we hear how Wall Street has been the source of some crises, the solution to others, and has been falsely blamed for yet more. This is good, but the author never explains how this ties in to his theorem. This is just one example of writing without argument.
4) Criticism without data: Cohan uses phrases like "obviously this is wrong," without explaining why. This is a political speech tactic, where the speaker/writer makes an observation, says that obviously this is wrong/right, and lets the listener fill in their own reasons why, which, psychologically speaking, strengthens the listener's stance on the issue because the brain thinks it has come up with the reasons itself. You can then, later in your narrative, give reasons why which, at this point in time, will now support the position the listener has taken. Again, this is a tactic of speechwriters. Sad to see it in a book. "Obviously this would be bad for the American economy," and that is the beginning and end of the argument.
5) Criticism without data 2: Cohan notes that yes, there are behaviors that need to be curbed, and that we should continue to use existing law to prosecute and scare others into compliance. Again, without taking sides in the argument, he says that there are behaviors that are permissible under the current set of laws that should not be, and then says that we should use current laws for enforcement, not install new ones. Forgetting your position on the matter, this is the mark of a weakly-thought-out argument, and in fact is not a cogent argument at all.
5) Criticism without data 3: Related to #2, Cohan notes again and again that the laws proposed in the 114th and 115th Congress would not have prevented the most recent financial crisis. That may be. Cohan does not, however, argue whether the proposed legislation would curb some other ill. It's akin to saying "the new laws on food safety would not have prevented the recent listeria outbreak," while not investigating whether it might help with salmonella in the same industry. Again, forgetting where the reader stands on the legislation mentioned in the book, this is bad logic and a weak argument.
I take no position on the arguments made here. They are often incomplete or contradictory, so it makes little sense to do so.
This is a poorly written book, content aside. And a fifth of it need not even exist. I would bet that, cut down to perhaps 10-15 pages and with another editor, this would make an engaging white paper. As a book, it fails miserably.
March 4, 2017
I think this is an important book for American liberals to read. As someone with left-leaning politics who was attracted to the economic policies of Bernie Sanders and Elizabeth Warren, I found this book informative and challenging.
Cohan argues that the primary function of the global financial system ("Wall Street")—that is, moving capital from those who have it and want to invest it to those who need it to start businesses, invent things, etc.—is a necessity without which our modern society could not exist. We have the flow of capital to thank for innovations that have changed the world and corporations that have deployed them.
At the same time, he recognizes that there is a great deal wrong with how this core function of the financial system has been (and still is being) conducted in practice, especially in the years leading up to the financial crisis of 2008.
He see the need for new regulations to stop the excesses and mismanagement that have characterized Wall Street, but does not support the rules and regulations that have been instituted by the Obama administration, and especially dislikes those proposed by Senators Sanders and Warren. These regulations, he says, are motivated by anger and the urge to punish, and they curtail Wall Street's ability to perform its core, prosocial function while doing nothing to stop the greed and mismanagement of money.
His proposal is to use regulation to change the incentive structure on Wall Street, to stop investment bankers from taking extravagant risks with other people's money, when they themselves stand to gain regardless of the outcome. Wall Street bankers must stand to lose personally from risky practices, and stand to lose everything.
He also suggests, in agreement with Warren and Sanders this time, that criminal practices should be dealt with by the criminal justice system, something that was inexplicably absent in the aftermath of the 2008 crisis.
In the end, I'm not sure Cohan has completely convinced me. When he was listing companies that would not be around if not for Wall Street, for example, I was not convinced that all of them had in fact made the world a better place. He also seemd to have no expectation of ethical behavior from those working in finance, casting them almost as machines that will tend toward any financially-incentivized behaviors. Perhaps this is a wise assumption from a policy standpoint, but I cannot help but wonder if this portrayal of Wall Street acts as a license for bad behavior.
The book did, however, lead me to rethink my basic stance toward the regulation of Wall Street. I had been attracted to a punitive approach, but I think the forward-looking, incentive-correcting approach advocated by Cohan will probably be more productive and beneficial for society.
I recommend this book to anyone who feels angry at Wall Street. It is well worth the time.
Cohan argues that the primary function of the global financial system ("Wall Street")—that is, moving capital from those who have it and want to invest it to those who need it to start businesses, invent things, etc.—is a necessity without which our modern society could not exist. We have the flow of capital to thank for innovations that have changed the world and corporations that have deployed them.
At the same time, he recognizes that there is a great deal wrong with how this core function of the financial system has been (and still is being) conducted in practice, especially in the years leading up to the financial crisis of 2008.
He see the need for new regulations to stop the excesses and mismanagement that have characterized Wall Street, but does not support the rules and regulations that have been instituted by the Obama administration, and especially dislikes those proposed by Senators Sanders and Warren. These regulations, he says, are motivated by anger and the urge to punish, and they curtail Wall Street's ability to perform its core, prosocial function while doing nothing to stop the greed and mismanagement of money.
His proposal is to use regulation to change the incentive structure on Wall Street, to stop investment bankers from taking extravagant risks with other people's money, when they themselves stand to gain regardless of the outcome. Wall Street bankers must stand to lose personally from risky practices, and stand to lose everything.
He also suggests, in agreement with Warren and Sanders this time, that criminal practices should be dealt with by the criminal justice system, something that was inexplicably absent in the aftermath of the 2008 crisis.
In the end, I'm not sure Cohan has completely convinced me. When he was listing companies that would not be around if not for Wall Street, for example, I was not convinced that all of them had in fact made the world a better place. He also seemd to have no expectation of ethical behavior from those working in finance, casting them almost as machines that will tend toward any financially-incentivized behaviors. Perhaps this is a wise assumption from a policy standpoint, but I cannot help but wonder if this portrayal of Wall Street acts as a license for bad behavior.
The book did, however, lead me to rethink my basic stance toward the regulation of Wall Street. I had been attracted to a punitive approach, but I think the forward-looking, incentive-correcting approach advocated by Cohan will probably be more productive and beneficial for society.
I recommend this book to anyone who feels angry at Wall Street. It is well worth the time.
January 10, 2019
A surprisingly decent foundation for understanding why financial institutions exist. I will have to listen to it again to truly get the most out of it, and honestly, I wish it was longer, to give the subject matter more space for in-depth analysis and explanation. That being said, it's piqued my interest to do some more self-educating to understand the "why" to "why does finance seem so distant and opaque".
March 16, 2024
This book is a useful corrective to the Bernie Sanders and Elizabeth Warren attacks on big banks and capitalism. Cohen reminds us why investment banks (as opposed to just your mom and pop retail banks) are not just useful but necessary. Further, that excessive attempts to regulate banks are counter-productive and ultimate bound to fail.
He provides background about how investment banks came about and valuable context regarding how it led to an explosion of access to credit which fuelled tremendous growth. Leftist critics will say that this led to much greater inequality with the 1% enriching themselves at the expense of the poor. The "at the expense" portion of it is what Cohen's book rather convincingly attacks. In the past, it was harder to get credit because retail banks are risk adverse. Your main street bank would lend to you based on a mix of personal relationships, credit history, and mom and pop wisdom about what would make money. That's hardly a recipe for backing risky ventures. Investment banks allowed for more risk taking, and correspondingly venture capital. It is hard to see Silicon Valley happening without investment banks. And this much easier access to money fuelled business and the wider economy. It's a useless corrective to the idea that investment banks are fundamentally evil (though they do have their unsavoury side).
How do we make sense of and more importantly respond to the sub-prime mortgage crisis then? Cohen and most of us can largely agree on the cause - the banks managed to create hugely complex financial instruments that nobody really understood well enough to properly evaluate the risk. It wasn't some massive conspiracy to defraud citizens or tank the economy (though banks are more than capable of that, think the manipulation of LIBOR for one, or Bank of America staff opening thousands and thousands of fictitious bank accounts). It was a collective failure to adequately gauge risk. One solution - greater government regulation and oversight such as mandatory stress tests, banks having to do simulations to prove they can handle worst case scenarios. Basically, force banks to be more sensitive to risk.
Cohen is very critical of this approach. He decries how risk analysts have become the bulk of banks recruitment post 2009, the massive amount of work doing all these scenario planning requires, and the significant costs of having to meet the annual stress tests. He also doesn't think they will be effective in truly being able to ward off worst case scenarios (and proverbial black swans). To be fair he doesn't use the common argument of saying that regulators can never keep up because they consist of much more poorly paid and therefore less intelligent people. But given the complexity of the financial system and the enormous incentive to innovate, regulation will struggle to keep pace.
I am sympathetic to this logic but his critique still comes across as tone deaf. Banks moaning about the added cost all this risk management entails. Really? After many of them raked in the millions and then their own risk taking tendencies caused the entire system to implode? The Obama administration has been heavily criticised for being too soft on the banks, and the public has every right to be angry after a bailout of that magnitude. Imagine if Timothy Geitner or Obama hadn't even implemented stress test requirements - rumours of a Golden Sachs takeover of Treasury would have been validated. More importantly, at the very least this shifts the culture however little. Risk managers aren't just annoying people to belittle and ignore - they're backed by mandatory government rules. Complain about being constrained? A sheriff is what you get for playing cowboy.
Where Cohen is least convincing, and which undermines a significant amount of the credibility of this book as a corrective is his proposed alternative to better manage risk. He clearly thinks government regulation isn't going to work and is actually harmful, they will constrain the ready flow of investment that is the lifeblood of capitalism. His solution - incentivise banks to regulate themselves better. Really? The very people who ignored risk chasing money that precipitated the entire crisis! Banks being too big to fail? Make sure the CEOs have a big enough stake in the banks investments that they will crash and burn with the bank. To be fair, this isn't illogical, just unrealistic. If there's one group of people who will know how to insulate themselves it is the bankers themselves. What do they have to lose? Their holiday home at the Hamptons? This is just terribly naive - who will watch over these watchmen if we followed Cohen's proposal?
In the end, Cohen does provide enough to convince me that investment banks might be necessary but not that they can regulate themselves. Government regulation and stress tests are flawed but critical until banks win back trust - if that's even possible.
He provides background about how investment banks came about and valuable context regarding how it led to an explosion of access to credit which fuelled tremendous growth. Leftist critics will say that this led to much greater inequality with the 1% enriching themselves at the expense of the poor. The "at the expense" portion of it is what Cohen's book rather convincingly attacks. In the past, it was harder to get credit because retail banks are risk adverse. Your main street bank would lend to you based on a mix of personal relationships, credit history, and mom and pop wisdom about what would make money. That's hardly a recipe for backing risky ventures. Investment banks allowed for more risk taking, and correspondingly venture capital. It is hard to see Silicon Valley happening without investment banks. And this much easier access to money fuelled business and the wider economy. It's a useless corrective to the idea that investment banks are fundamentally evil (though they do have their unsavoury side).
How do we make sense of and more importantly respond to the sub-prime mortgage crisis then? Cohen and most of us can largely agree on the cause - the banks managed to create hugely complex financial instruments that nobody really understood well enough to properly evaluate the risk. It wasn't some massive conspiracy to defraud citizens or tank the economy (though banks are more than capable of that, think the manipulation of LIBOR for one, or Bank of America staff opening thousands and thousands of fictitious bank accounts). It was a collective failure to adequately gauge risk. One solution - greater government regulation and oversight such as mandatory stress tests, banks having to do simulations to prove they can handle worst case scenarios. Basically, force banks to be more sensitive to risk.
Cohen is very critical of this approach. He decries how risk analysts have become the bulk of banks recruitment post 2009, the massive amount of work doing all these scenario planning requires, and the significant costs of having to meet the annual stress tests. He also doesn't think they will be effective in truly being able to ward off worst case scenarios (and proverbial black swans). To be fair he doesn't use the common argument of saying that regulators can never keep up because they consist of much more poorly paid and therefore less intelligent people. But given the complexity of the financial system and the enormous incentive to innovate, regulation will struggle to keep pace.
I am sympathetic to this logic but his critique still comes across as tone deaf. Banks moaning about the added cost all this risk management entails. Really? After many of them raked in the millions and then their own risk taking tendencies caused the entire system to implode? The Obama administration has been heavily criticised for being too soft on the banks, and the public has every right to be angry after a bailout of that magnitude. Imagine if Timothy Geitner or Obama hadn't even implemented stress test requirements - rumours of a Golden Sachs takeover of Treasury would have been validated. More importantly, at the very least this shifts the culture however little. Risk managers aren't just annoying people to belittle and ignore - they're backed by mandatory government rules. Complain about being constrained? A sheriff is what you get for playing cowboy.
Where Cohen is least convincing, and which undermines a significant amount of the credibility of this book as a corrective is his proposed alternative to better manage risk. He clearly thinks government regulation isn't going to work and is actually harmful, they will constrain the ready flow of investment that is the lifeblood of capitalism. His solution - incentivise banks to regulate themselves better. Really? The very people who ignored risk chasing money that precipitated the entire crisis! Banks being too big to fail? Make sure the CEOs have a big enough stake in the banks investments that they will crash and burn with the bank. To be fair, this isn't illogical, just unrealistic. If there's one group of people who will know how to insulate themselves it is the bankers themselves. What do they have to lose? Their holiday home at the Hamptons? This is just terribly naive - who will watch over these watchmen if we followed Cohen's proposal?
In the end, Cohen does provide enough to convince me that investment banks might be necessary but not that they can regulate themselves. Government regulation and stress tests are flawed but critical until banks win back trust - if that's even possible.
November 6, 2020
4+ stars Excellent even-handed description of the financial system, its risks and its rewards for a free-market economy. Cohan provides essential background material on the history and maturation of what we refer to as Wall Street. The essence of his recommendations, published a short time after Trump was elected and regulations slashed, is to revamp executive compensation such that runaway schemes are leveraged against real pain to those executives. Cohan understands human nature, which does not change, as well as the founding fathers, who installed checks and balances against the seamy side of that nature.
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March 7, 2018Claims we don't need to regulate Wall Street.
January 3, 2024
This may be the worst “nonfiction” book I have ever read. There were only 10 references in the bibliography, and the book was just bootlicking Wall Street for 150 pages.
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April 19, 2018Why Wall Street Matters
Why Wall Street Matters by David Cohen functions as a beginners guide to how Wall Street works and why Wall Street is the way that it is. It also functions dually as an attempt at easing the tension between big banks and the common person. After the economical collapse of 2008 the public was furious at the risk taking of the banks and their fall back on tax payer dollars without inducing any consequence themselves. To describe this Cohen uses a very down to earth method of story telling and and allowing the reader to understand Wall Street at its most basic core. From the first national bank to the current day monstrous investment banks, Cohen skims over the necessities on which Wall Street has built its history upon. Despite the implication of a heavily opinionated piece Cohen does a great job of allowing the reader to form their own opinion before he introduces his own ingenious solution. Aside from the principles of his solution, his theories are very well warranted. Although I may not fully agree with his solutions or causes of certain outcomes, I certainly respect them and was obliged to at least consider their veracity. Why Wall Street Matters is a great book for anyone skeptical of the real importance of Wall Street and confirms the hopes of anyone still in good favor with Wall Street. This book is not for the advanced business minded reader nor anyone with little interest in Wall Street. I would give this book a 3.5/5.
Why Wall Street Matters by David Cohen functions as a beginners guide to how Wall Street works and why Wall Street is the way that it is. It also functions dually as an attempt at easing the tension between big banks and the common person. After the economical collapse of 2008 the public was furious at the risk taking of the banks and their fall back on tax payer dollars without inducing any consequence themselves. To describe this Cohen uses a very down to earth method of story telling and and allowing the reader to understand Wall Street at its most basic core. From the first national bank to the current day monstrous investment banks, Cohen skims over the necessities on which Wall Street has built its history upon. Despite the implication of a heavily opinionated piece Cohen does a great job of allowing the reader to form their own opinion before he introduces his own ingenious solution. Aside from the principles of his solution, his theories are very well warranted. Although I may not fully agree with his solutions or causes of certain outcomes, I certainly respect them and was obliged to at least consider their veracity. Why Wall Street Matters is a great book for anyone skeptical of the real importance of Wall Street and confirms the hopes of anyone still in good favor with Wall Street. This book is not for the advanced business minded reader nor anyone with little interest in Wall Street. I would give this book a 3.5/5.
November 9, 2017
This is the dumbest book I've read in at least two years. And I read Ben Carson's book. I'm not a huge Elizabeth Warren fan, but this is waaaaay too far in the other direction. Basically, we don't need to regulate Wall Street if we make them personally liable for bank failures like back in the old days. They 're just so smart they won't cause any major problems. We definitely never had major financial crises or depressions before big investment banks went public so no need to worry about that. The amount of supporting evidence this guy provides for his arguments is so minimal, and in many cases completely absent, that this book would have a hard time getting above a D if it was turned in by a high schooler. I get that he's trying to make this accessible, but I'm not going to take your word for it.
July 25, 2021
I don't typically write reviews for the books I read, but I was sincerely disappointed with this book so I wanted to air a few thoughts.
I picked up this book at the library because "Wall Street" felt like an unrecognizable fog, something that Cohan acknowledges early in the book ("the phrase 'Wall Street' conjures confusion. What are we talking about? The actual place? Just the very biggest investment banks, or the smaller ones too?" etc). I understood the general function of financial institutions - to create a loanable funds market where people who want capital can gain access to it from people who want to get paid to save - but in the fog, it felt as though a lot of what happened in large financial institutions was outside of that immediate purpose. I'm looking at you, credit default swaps.
So, to state that again: I chose to read this book because I wanted to understand better how the operations of financial institutions - beyond simple loans to businesses and individuals - improved people's lives.
Cohan does reiterate time and time again that banks link suppliers and demanders of loanable funds, for which I give him kudos. However, he fails to break down for the lay-reader how more complex financial instruments benefit people - he fails to explain why Wall Street beyond the simple loanable funds market (which is a clear necessity) matters.
This is not to say that those complex financial instruments don't matter, that they don't improve lives. I'm not sure if they do - that's why I wanted to read this book, so someone could break down those instruments and make clear their purpose! Cohan seems to suggest that such financial instruments are simply a more ingenious way of extending capital to borrowers, but that's never clealy explained. He fails to break down those instruments, in turn failing to answer the question his title asks beyond the most basic of answers.
Instead, Cohan seems to spend most of the book slapping down a strawman, this idea that many want to eradicate financial institutions entirely. Financial regulation is said to be a death sentence for Wall Street, which accordingly is a death sentence for the American economy, which in turn will send us back to the Middle Ages (this is in fact how the book ends). Despite the dramatic hyperbole, I agree with Cohan that a loanable funds market is crucial to a functional modern economy - like, if we didn't have any banks at all, we probably would be in pretty dire straits. But it just seems completely insane to suggest that Dodd-Frank is actually destroying the entire financial industry, or even making it that much harder for businesses and individuals to access needed capital. Indeed, though Cohan quotes some Wall Street executives who say that's the case, Janet Yellen has said that Dodd-Frank boosted financial stability without limiting access to capital or capping growth. So, that seems to kind of throw a wrench into the argument made here.
I don't know - I want to reiterate that I think capital markets are hugely important to improving life quality and that I don't understand complex financial instruments and they could in fact be very useful tools. But Cohan forgoes explaining the benefit of those instruments in favor of criticizing liberal politicians.
I give the book two stars because for the person who absolutely hates banks, this book serves to let them know, hey, loans are really useful. But for the vast majority of readers who don't hate the banks... this book does a poor job explaining why Wall Street matters.
I picked up this book at the library because "Wall Street" felt like an unrecognizable fog, something that Cohan acknowledges early in the book ("the phrase 'Wall Street' conjures confusion. What are we talking about? The actual place? Just the very biggest investment banks, or the smaller ones too?" etc). I understood the general function of financial institutions - to create a loanable funds market where people who want capital can gain access to it from people who want to get paid to save - but in the fog, it felt as though a lot of what happened in large financial institutions was outside of that immediate purpose. I'm looking at you, credit default swaps.
So, to state that again: I chose to read this book because I wanted to understand better how the operations of financial institutions - beyond simple loans to businesses and individuals - improved people's lives.
Cohan does reiterate time and time again that banks link suppliers and demanders of loanable funds, for which I give him kudos. However, he fails to break down for the lay-reader how more complex financial instruments benefit people - he fails to explain why Wall Street beyond the simple loanable funds market (which is a clear necessity) matters.
This is not to say that those complex financial instruments don't matter, that they don't improve lives. I'm not sure if they do - that's why I wanted to read this book, so someone could break down those instruments and make clear their purpose! Cohan seems to suggest that such financial instruments are simply a more ingenious way of extending capital to borrowers, but that's never clealy explained. He fails to break down those instruments, in turn failing to answer the question his title asks beyond the most basic of answers.
Instead, Cohan seems to spend most of the book slapping down a strawman, this idea that many want to eradicate financial institutions entirely. Financial regulation is said to be a death sentence for Wall Street, which accordingly is a death sentence for the American economy, which in turn will send us back to the Middle Ages (this is in fact how the book ends). Despite the dramatic hyperbole, I agree with Cohan that a loanable funds market is crucial to a functional modern economy - like, if we didn't have any banks at all, we probably would be in pretty dire straits. But it just seems completely insane to suggest that Dodd-Frank is actually destroying the entire financial industry, or even making it that much harder for businesses and individuals to access needed capital. Indeed, though Cohan quotes some Wall Street executives who say that's the case, Janet Yellen has said that Dodd-Frank boosted financial stability without limiting access to capital or capping growth. So, that seems to kind of throw a wrench into the argument made here.
I don't know - I want to reiterate that I think capital markets are hugely important to improving life quality and that I don't understand complex financial instruments and they could in fact be very useful tools. But Cohan forgoes explaining the benefit of those instruments in favor of criticizing liberal politicians.
I give the book two stars because for the person who absolutely hates banks, this book serves to let them know, hey, loans are really useful. But for the vast majority of readers who don't hate the banks... this book does a poor job explaining why Wall Street matters.
January 18, 2020
What better way to start 2020 than by raising self-awareness but not being blanched about an impending recession? :) Why Wall Street Matters is a book that helped me do just that. The author, William Cohan is known for his business books, one of which is also a winner of Goldman Sachs Business Book Award ('The Last Tycoons' - about Lazard Freres & Co.), and this is book belongs to the same shelf both in content and its quality.
The majority of the book is objective, explaining the history of Wall Street (from the time there was literally a wall), the early wild-west like era (wild-Wall?), the creation of Fed after 1907's recession, its failure to stop the Great Recession etc.
In all those chapters, the book virtually looks like the Wall Street equivalent of Neil deGrass Tyson's 'Astronomy for People in a Hurry'. But that all goes away in the las chapter, which explains author's ideas about how to solve the Wall Street greed issue. Clearly, the author has made it very obvious that he's against Elizabeth Warren and Bernie Sanders's policies of breaking-up big banks, or even their support for condemning banks to ultra regulations. The author makes it very clear that the book is pro-Wall Street, pro capitalism, and particularly pro innovation in Wall Street (which I'm a big fan of).
I got to learn a lot of stuff on investment banking from this book - the The Glass-Steagall Act of 1933 which separated investment banking from customer facing retail banking, which is why we have J.P.Morgan Chase and Morgan Stanley as separate entities today; what necessitated the setting up of Federal Reserve; how recessions and bubbles way predate Wall Street, like Tulip bubble in Netherlands way before Wall Street even existed etc.
But my favorite part of the book is the penultimate chapter - "Innovations", that elaborates how some of the causes of 2008 financial crisis were first literally very innovative tools of investment banks. Junk Bonds that came out of Drexel Burnham Lambert, Blythe Masters's genius idea of Credit Default Swap while at JP Morgan, Lewis Ranieri's idea of Mortgage Backed Securities etc are the main ones.
Overall, if you want to get an idea of a capitalist's view on how Wall Street is not solely responsible for the crisis of 2008, this book is for you!
The majority of the book is objective, explaining the history of Wall Street (from the time there was literally a wall), the early wild-west like era (wild-Wall?), the creation of Fed after 1907's recession, its failure to stop the Great Recession etc.
In all those chapters, the book virtually looks like the Wall Street equivalent of Neil deGrass Tyson's 'Astronomy for People in a Hurry'. But that all goes away in the las chapter, which explains author's ideas about how to solve the Wall Street greed issue. Clearly, the author has made it very obvious that he's against Elizabeth Warren and Bernie Sanders's policies of breaking-up big banks, or even their support for condemning banks to ultra regulations. The author makes it very clear that the book is pro-Wall Street, pro capitalism, and particularly pro innovation in Wall Street (which I'm a big fan of).
I got to learn a lot of stuff on investment banking from this book - the The Glass-Steagall Act of 1933 which separated investment banking from customer facing retail banking, which is why we have J.P.Morgan Chase and Morgan Stanley as separate entities today; what necessitated the setting up of Federal Reserve; how recessions and bubbles way predate Wall Street, like Tulip bubble in Netherlands way before Wall Street even existed etc.
But my favorite part of the book is the penultimate chapter - "Innovations", that elaborates how some of the causes of 2008 financial crisis were first literally very innovative tools of investment banks. Junk Bonds that came out of Drexel Burnham Lambert, Blythe Masters's genius idea of Credit Default Swap while at JP Morgan, Lewis Ranieri's idea of Mortgage Backed Securities etc are the main ones.
Overall, if you want to get an idea of a capitalist's view on how Wall Street is not solely responsible for the crisis of 2008, this book is for you!
May 14, 2017
From the beginning (indeed even the title), it is clear the purpose that William Cohen has for this book - to tell us why Wall Street matters. In his words from the introduction, he states "that the essential elements of Wall Street - Wall Street in its purest and most practical forms - must be preserved, encouraged and praised" (p. Xxv). He asserts this throughout, but fails to give compelling arguments.
One of the best parts of this book (to me) was his recounting the history of investment banks moving from privately-held partnerships to publicly-owned institutions. Cohen's knowledge and experience in the investment banking business clearly shows in this section.
In another section of the book, Cohan quotes Henry Clews, a British-born American financier in comments about the necessity of "moral and honest principles" in business. This area would be fruitful for further discussion.
Much of the rest of the book, however, is full of assertions without much support for his statements. In addition, he clearly shows disdain for certain politicians and their policy prescriptions. He has no use for those who have suggested additional capital or the break up of big banks. As for his own prescription, Cohan only recommends the elimination of the bonus system on Wall Street and that the leaders of big Wall Street firms "need to have their full net worth on the line." Presumably he is referring to investment banks (and not commercial banks) but that is not clear given that I don't recall that he defines Wall Street at any point.
As the book moves along, Cohan's tone becomes more one-sided and even shrill. Perhaps the most egregious example of the attitude of the book is in the conclusion. Cohan quotes a senior Wall Street executive, who essentially states (I'll leave off the profanities) that if we "shut down" Wall Street, we'll love the Middle Ages.
This book could have been an opportunity to advance the discussion about the role of financial intermediaries post- financial crisis. Rather, much of this book is instead a one-sided screed that solely parrots the standard Wall Street 'line'.
One of the best parts of this book (to me) was his recounting the history of investment banks moving from privately-held partnerships to publicly-owned institutions. Cohen's knowledge and experience in the investment banking business clearly shows in this section.
In another section of the book, Cohan quotes Henry Clews, a British-born American financier in comments about the necessity of "moral and honest principles" in business. This area would be fruitful for further discussion.
Much of the rest of the book, however, is full of assertions without much support for his statements. In addition, he clearly shows disdain for certain politicians and their policy prescriptions. He has no use for those who have suggested additional capital or the break up of big banks. As for his own prescription, Cohan only recommends the elimination of the bonus system on Wall Street and that the leaders of big Wall Street firms "need to have their full net worth on the line." Presumably he is referring to investment banks (and not commercial banks) but that is not clear given that I don't recall that he defines Wall Street at any point.
As the book moves along, Cohan's tone becomes more one-sided and even shrill. Perhaps the most egregious example of the attitude of the book is in the conclusion. Cohan quotes a senior Wall Street executive, who essentially states (I'll leave off the profanities) that if we "shut down" Wall Street, we'll love the Middle Ages.
This book could have been an opportunity to advance the discussion about the role of financial intermediaries post- financial crisis. Rather, much of this book is instead a one-sided screed that solely parrots the standard Wall Street 'line'.
May 18, 2019
What a fortuitous time to pick up this book - just at Uber's less-than-stellar IPO was happening. While veteran business journalist William Cohan's concise 150-page defence of Wall Street was published a couple of years ago and obviously doesn't address the IPOs of Lyft and Uber and the pending ones of several more not-yet-profitable Unicorns, it was nonetheless a great week in which to read Cohan's work. Cohan makes a passioned defence of Wall Street, the bane of US regulators since the financial crisis of 2008. He makes a good case that the intense monitoring of Wall Street investment banks and US retail banks that was instituted in the wake of the crisis should be reduced significantly, and instead that the perverse incentives that led to so many excesses by Wall Street executives in the past 50 years (since the first Wall Street investment bank went public) be changed so that executives' own assets are on the line if a firm gets into financial trouble. While the book written two years ago, Cohan's observations of politicians capitalising on Wall Street's woes is highly relevant especially in light of Elizabeth Warren's recent activities - while a lifelong Democrat voter, Cohan doesn't hold back when he thinks politicians like her and Bernie Sanders are engaging in populist-type tactics and misrepresenting Wall Street's vital role in US and world commerce. The early stages of the book are fascinating as Cohan describes Wall Street's origins and how it got its name - clue: it's not named after an early prominent New Yorker by the name of Mr Wall, as I'd sort of assumed. The story is far more interesting than that. Overall, this is a great, informative read. I'd love to read Cohan's perspective on the Uber and Lyft IPOs - he's a working financial journalist, so I'll be Googling his name and Uber/Lyft soon.
November 30, 2017
The guy definitely has a few axes to grind with politicians (Elizabeth Warren’s name popped up every dozen pages or so) and federal regulators. So, in some ways this book is the result of Cohan’s inner angst at reactive over regulation of Wall Street after 2008. Nevertheless, I did learn a few things. I finally understand what a credit default swap is and I have a better idea of how the first IPO (DFJ in 1969) transformed Wall Street. What really the saved the book, though was his closing argument about the simplest fix to Wall Street without crippling its function of providing capital for global commerce. The primary problem with Wall Street is the socialization of risk and the privatization of reward. Thus, the simplest solution is not a 2,300 page Dodd-Frank bill full of regulations but to put the risk back upon the shoulders of the risk-takers. Cohan concludes: “The fix for Wall Street should be directed at its compensation system, not at the functioning of Wall Street itself. It’s really as simple as that. Fix the compensation system—make bankers, traders, and executives fear for their art collections, their co-ops, and their homes in the Hamptons—and sit back and watch how quickly it works to change people’s bad behavior” (146).
Of course, that doesn’t really sound like capitalism, so I don’t foresee that solution happening any time soon.
Of course, that doesn’t really sound like capitalism, so I don’t foresee that solution happening any time soon.
May 29, 2019
I loved how easy it was to read the book. My main takeaway was how the misperception towards improving Wall Street prevents the banks from having enough liquidity in security markets, which affect 401Ks and other statements of average Americans, in order to provide big capital to businesses and good investment opportunities to people. The historical explanation of Wall Street was quite fun as well, including examples of activists blowing up the street and killing many civilians and men who carried stocks (they had physical letters for transactions back in the day) to the banks. In this example, the main target of course was JP Morgan and other big bankers who were having a meeting in a glass room. But none of them died that day. Moreover, the distinction between investment banks before going public in the 1970s and investment banks now is very important. Cohen constantly says bankers used to take risk with their own money, thus having direct consequences. But when the banks went public, bankers started taking risks with people’s money in order to get big bonuses.
It is a fun and quick read for anyone who seeks easy-to-absorb information on the history of Wall Street and the unbiased evaluation of law and regulations that limit the financial institutions.
It is a fun and quick read for anyone who seeks easy-to-absorb information on the history of Wall Street and the unbiased evaluation of law and regulations that limit the financial institutions.
December 26, 2022
Da Occupy Wall Street a Wall Street Matters, nel giro di pochi anni. La narrazione che vuole orde di finanzieri senza scrupoli razziare tutti i bonus a sei zeri disponibili, alla faccia del 99%, deve essere, dice l’autore di questo che a buon diritto si iscrive nella categoria dei pamphlet, rivista e corretta. Anzi, ribaltata. Il campo visivo del cittadino medio alle prese con le sue personali questioni finanziarie va forzosamente allargato per fargli comprendere che il capitalismo (e di conseguenza la nostra qualità della vita) ha bisogno di Wall Street e di ciò che essa rappresenta. Intendiamoci, gli speculatori che guadagnavano follie rischiando “other’s people money” è sempre esistita, anche prima della santificazione dei mercati come autoregolatori. Per questo, dice l’autore, l’unica riforma che può impedire nuove crisi tipo 2008 e allo stesso tempo garantire un corretto funzionamento dei mercati finanziari deve essere all’insegna del laissez faire. Regole federali troppo stringenti strozzano l’economia e impediscono alle banche impaurite di prestare soldi a chi ne ha bisogno. Insomma, i bail out non erano un toccasana (benché il governo federale ci abbia magistralmente lucrato sopra). Tanto è vero che i superpremi continuano a essere elargiti senza vergogna.
March 19, 2022
A good book, providing a short history of Wall Street and an explanation of its role in America’s continued economic growth. The author, financial commentator William D. Cohan, sets out to provide a fact based commentary of the U.S. financial system, explaining both its positive and negatives. Cohan launches into a succinct and careful history of the financial system in general and Wall Street in particular. Though he doesn’t provide all the ins-and-outs of complex financial mechanisms, Cohan does a good job explaining the broad interplay between banks, investors, and entrepreneurs. He concentrates on the central issue of finance’s relation to the broader economy: the need to produce short term profits from long term investments. Cohan ends the book with a set of recommendations, most of which run counter to the predominant “utility regulation” mindset he sees as stifling the markets today. Highly recommended for anyone interested in better understanding financial markets, their role in America’s history, and their future path.
December 5, 2017
I admit I wouldn't have read this had it not been a book club choice, but I thought it might be enlightening. I also admit I didn't find it user friendly or always easy to comprehend. What comes through is the author's extreme defensiveness about Wall Street, which I do understand after having come through last year's elections and some strong Wall Street bashing.
He decries the overzealous response to the 2008 financial crisis, and the subsequent wave of what he views as extreme over-regulation. He sees this regulation and the anti-risk mindset as stifling our economy and stopping Wall Street from doing what it does best to stoke entrepreneurial fires.
I am not knowledgeable enough to agree or disagree. Some of his examples I thought odd, like the fact that he finds it abhorrent that federal regulators can attend board meetings.
Maybe financial world insiders would get more from this book. I found few concrete suggestions but a long list of problems.
He decries the overzealous response to the 2008 financial crisis, and the subsequent wave of what he views as extreme over-regulation. He sees this regulation and the anti-risk mindset as stifling our economy and stopping Wall Street from doing what it does best to stoke entrepreneurial fires.
I am not knowledgeable enough to agree or disagree. Some of his examples I thought odd, like the fact that he finds it abhorrent that federal regulators can attend board meetings.
Maybe financial world insiders would get more from this book. I found few concrete suggestions but a long list of problems.
October 27, 2020
Short essay on Wall Street as a concept that tries to go into what the financial capital markets are and why they are important. It's actually a really simple thesis and the autheor does do a relatively good job of explaining it. The financial markets are the reason our societies can be so productive and make the most impactful use of our resources. This is true and I don't think many people think about it that way. For this reason the book is good.
However at the end of the book it's just a long rant about regulations. I kinda get where he is coming from. The regulations are a burden on an important industry, but that industry itself hasn't really done itself any favours in the PR department recently, so it's not surprising that there are currently regulations.
Unfortunately, the author's proposed solution of just cutting all the regulation isn't really that constructive. I was hoping for something more.
However at the end of the book it's just a long rant about regulations. I kinda get where he is coming from. The regulations are a burden on an important industry, but that industry itself hasn't really done itself any favours in the PR department recently, so it's not surprising that there are currently regulations.
Unfortunately, the author's proposed solution of just cutting all the regulation isn't really that constructive. I was hoping for something more.
March 13, 2018
A rather slim volume that only partially, I think, answers the question its title proposes. However, it does prescribe somewhat convincingly a remedy for most of what ails the banking industry with a clarity that ought to be drilled into the heads of the entire regulatory bureaucracy that our politicians seem hell bent on imposing. In a nutshell, Cohan's proposal centers on changing the focus of regulation from overseeing the entire process of banking, and rather motivating the bankers themselves by returning to an era when the bankers themselves had skin in the game, and that their compensation was not motivated by how well they did at risking other peoples' money. I do fault him, though, for not being more explicit in how he would make such a change. Perhaps good food for thought in what to look for in a future work on banking.
September 14, 2018
What most people want to know is how to prevent future Wall Street disasters, and what's missing is individual liability. It's fun to bet with other people's money especially if the government will guarantee reimbursement for catastrophic losses, which the Federal Reserve and FDIC are set up to do. The author maintains that Wall Street and big banks provide the necessary capital to America and the world, so it is not a good idea to reduce the size of banks or eliminate Wall Street. His solution is that the cultural shift towards ethical and responsible behavior needs to come from within Wall Street institutions. Personally, I think Iceland's solution (jail for at least 26 of the bankers responsible for the economic collapse) would work better and create more effective disincentives to playing the Wall Street Casino.
August 3, 2017
An Excellent book on Wall St and its importance to not just the country , but the world. The author looks back at the history of the financial market, why it was developed, and why it's needed. He provides a very readable look at what caused the various financial crises in our history, and gives a prescription for remedy. He takes great issue with Bernie Sanders and Elizabeth Warren and their take no prisoners approach which would devastate the markets. I liked his commentary on how Wall St enabled us to have so many of the products we have today, and why the world comes here to get money. I am not a financial expert, but consider this book to be must reading for anyone interested in the economy today and how scary the radicals are in their assault on a vital institution.
September 11, 2019
-history of wall street, and the IPO
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-wall street's purpose: raise capital from public for corporations to expand
-highly critical of Warren, Sanders attacks on wall street
-Glass Stegall separates Investment and Commercial Banks, repealed
-Investments banks went public in 70's. Historically, investment banks were a partnership, and partners were very careful with their investments. The Author main point of the book is that any regulation should mimic this paradigm. Wall Street firms with public funding have gotten away from this and reward outsized risk taking. Wall Street Bonus should have claw backs and the personal wealth of bankers should be liable to asset forfeiture if risk from their trades blow up.
-
-wall street's purpose: raise capital from public for corporations to expand
-highly critical of Warren, Sanders attacks on wall street
-Glass Stegall separates Investment and Commercial Banks, repealed
-Investments banks went public in 70's. Historically, investment banks were a partnership, and partners were very careful with their investments. The Author main point of the book is that any regulation should mimic this paradigm. Wall Street firms with public funding have gotten away from this and reward outsized risk taking. Wall Street Bonus should have claw backs and the personal wealth of bankers should be liable to asset forfeiture if risk from their trades blow up.
February 20, 2018
The author argues generally against regulating Wall Street, while agreeing that the incentive structure there needs to be changed. His reason against regulation is that it raises the cost of credit.
I buy his assessment that the regulations are meant to prevent crises like in 2008. I don't buy his argument that they are worse than not regulating at all.
People often say that markets should be minimally regulated so they can sort out the winners from the losers. Well, if the banks are finding it harder to lend (because they took too much risk), the BROADER market will figure out another way.
I buy his assessment that the regulations are meant to prevent crises like in 2008. I don't buy his argument that they are worse than not regulating at all.
People often say that markets should be minimally regulated so they can sort out the winners from the losers. Well, if the banks are finding it harder to lend (because they took too much risk), the BROADER market will figure out another way.
September 2, 2019
Good overview of history and need for Wall Street. Cohen runs through what he considers some seminal points that led to 2008 crisis.
Many people claim in other reviews he is saying Wallstreet should not be regulated.
What Cohen is saying is that the specific regulation of Dodd-Frank is not very useful and it is bad regulation. Most of his focus on regulation is Dodd Frank.
Cohen proposes that redoing compensation is a much more effective solution than Dodd Frank or breaking up the banks or firms.
Many people claim in other reviews he is saying Wallstreet should not be regulated.
What Cohen is saying is that the specific regulation of Dodd-Frank is not very useful and it is bad regulation. Most of his focus on regulation is Dodd Frank.
Cohen proposes that redoing compensation is a much more effective solution than Dodd Frank or breaking up the banks or firms.
February 5, 2022
This book is a quick read and I think a worthwhile one, but seems a bit underdeveloped. The central thesis (in my reading) is that “Wall Street” institutions (namely investment banks) have valid and important purposes, but their status as publicly-traded corporations enables partners to access vast amounts of capital without having enough at stake personally to discourage excessive risk-taking, and changing this would eliminate the problems with the culture at these institutions. I think this is a good point, but I finished the book quite unconvinced that the solution is so simple.
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