By Vikas Datta
Title: Why Wall Street Matters; Author: William D. Cohan; Publisher: Penguin Random House; Pages: 192; Price: Rs 499
Just a little over a kilometre long, this New York road can lay claim to being the global “headquarters” of market capitalism. Revered as an unmatched repository of capital and financial advice behind a range of innovative services and technologies, it is equally reviled as the site for unconscionably greedy and reckless profit-making. Which of these should we believe about Wall Street?
American financial journalist William D. Cohan leans largely towards the first as he seeks to make a case for Wall Street’s importance to the world we have become used to. Many of today’s innovations, from swanky mobile phones to credit cards to pension plans, he contends in this book, owe their genesis to it.
While he acknowledges that there have been aberrations — of the sort that led to the 2008 financial meltdown with consequences all around the world — and whose malefic influence still lingers, he also seeks to suggest what should be done — and certainly not done — to check their recurrence.
But first Cohan seeks a calmer discourse about Wall Street than the “so utterly hyperbolic, supercharged, entrenched and polemic” discussion underway that obscures the real issues. He also suggests we must understand what it actually is, how it works and what it has contributed.
Noting that even the phrase ‘Wall Street’ is confusing, he asks if we mean the “actual” road itself (which he goes on to subsequently show can be very misleading) or just the very biggest investment banks.
But then what about hedge funds and private-equity firms there or elsewhere in New York as well as in the rest of the US, or for that matter, around the world. And even if we fix Wall Street’s meaning, how we “feel” about it is also crucial, he argues.
Is it a “festering open wound of rampant self-interest and malfeasance” (a la Gordon “Greed is Good” Gekko from Oliver Stone’s “Wall Street”, 1987), or a “convenient metaphor that politicians use to park blame for every bad economic thing that has befallen the country in recent years” or something totally different, he asks.
Cohan suggests that Wall Street could also be the “brilliantly designed engine that powers innovation, growth and wealth creation, and that has become the most sustained way by which billions of people the world over have been lifted out of poverty and given a chance at a better, more economically fulfilling life”.
Given this description — and the book’s title itself — there is no doubt what the author believes himself, though he does accept that the earlier two descriptions are also valid to some extent.
But Cohan, a journalist with Vanity Fair and author of “House of Cards”, a masterly recounting of the fall of investment bank Bear Stearns, does not strike much balance in this slim work. The last third of it seems his own polemic against what he feels are ill-informed politicians (especially Democrats Elizabeth Warren and Bernie Sanders), intrusive bureaucrats and deadening regulations and regulators.
However, the major part of the book is worth it. Beginning with what Wall Street was when the Dutch ruled Manhattan and its role in the early economic history of the newly-independent US, Cohan goes to discuss lucidly what banks actually do (and how) and the American response to financial crises in the 20th century. Here President Franklin Delano Roosevelt’s handling of the Great Depression comes in for praise, especially in his attempts to reassure citizens — which Cohan notes was missing in 2008.
He then takes us through the birth of the IPO, and financial innovations like securitisation and mortgage-backed securities, junk bonds, credit default swaps and others (and what their creators’ eventual fate were) before coming to the aftermath of 2008 and his prescriptions.
This, as said above, is the most subjective, not to mention sketchy, part where the author swings from partisan to unworkable measures insofar as regulation of markets, liability of investment bankers, or other related matters are concerned, despite seeking to anchor them in human motivations (especially incentive).
If these are ignored — or taken with a pinch of salt — the clear picture the book provides of how modern market economies operate and the problems that they can face cannot be bettered.
(Vikas Datta can be contacted at email@example.com)