It's not often you get a life-long political progressive who voted for Bernie Sanders for president in the Democratic primaries in 2016 to bash both Sanders and Elizabeth Warren for bashing Wall Street's Big Banks, so when I read last week that former business writer and Wall Street investment banker William Cohan was doing just that, I was intrigued. In an article in the Saint Louis Post-Dispatch about Cohan's book "Why Wall Street Matters," writer David Nicklaus discusses Cohan's contentions.
“I felt like people needed to be reminded how important Wall Street is to our way of life,” Cohan said last week at a wealth-management conference at Washington University. “There would be no Apple without capital markets.”
Cohan, whose previous books include a history of Goldman Sachs and an account of Bear Stearns’ collapse, even favors scrapping much of the Dodd-Frank Act, the banking law that was a reaction to the excesses of the financial crisis.
“Not only is it a problem for Wall Street, it is creating problems getting capital to the small and medium-sized companies in this country that create most of the innovation and most of the jobs,” he told the St. Louis audience. “They remain starved for capital."
On the other hand, Cohan is not a cheerleader for the Masters of the Universe. He proposes that each of the "top 500 executives" of the large Wall Street firms should put their personal net worth at risk. If the firm fails, the top brass' balance sheets are also wiped out. Cohan notes that for most of the history of Wall Street, investment banks were general partnerships, in which each general partner's net worth was at risk for the partnership's debts. With the relatively recent phenomenon of Wall Street firm's "going public," the captains of Wall Street's Titanics can row away with hundreds of millions safely tucked away. Shareholders and, if the US government steps in as it did after Lehman Brothers tanked in 2008 and bails the bank out so the country's not plunged into a Zombie Apocalypse, the American taxpayer, take all of the downside risk.
Cohan asserts that such a "disincentive" would be more of a deterrent to bad behavior on Wall Street than the remedies proposed by Sanders, Warren, and like-minded folks: "smaller banks and more regulation."
That, Cohan says, is exactly the wrong approach. America benefits from the strongest capital markets in the world, and deliberately weakening them would make all of us poorer.
While many people of various political hues would likely support that proposal, I'm guessing that Jamie Dimon won't be popping frosties with Cohan any time soon. Moreover, given the fact that trying to get even basic bank regulatory relief passed with the current Congress and White House seems as difficult as getting our fearless leader to refrain from reflexive tweet abuse, I doubt any such corrective measure will be forthcoming within the limits of the rule against perpetuity. In addition, Jeb Hensarling and Maxine Waters would likely engage in a cage death match over whether the top 500 executives should be at risk, or whether the proper number is 499. Finally, the adoption of such an alternative approach would mean Liz Warren would have to admit that she might be wrong about something, which will happen the day after Matthew McConaughey admits that he has made the most annoying automobile commercial of all time (effectively parodied by the brilliant Ellen Degeneres below).
Of course, I could be wrong, as certain readers of this blog seemed compelled by the voices in their heads to tell me, inasmuch as a minority of them seem to lack either gainful employment or adequate impulse control. If so, then I can live with it.