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In Defense of Demonized Wall Street

By: Trennert, 09/27/2015

Never mind the Sanders-Clinton-Trump complaints. Capital markets have been a blessing to untold millions.

‘I happen to believe that the business model of Wall Street,” Democratic presidential candidate Bernie Sanders said earlier this year, “is fraud and deception.” Hillary Clinton is only slightly more subtle. “I went to Wall Street,” she said in the recent Democratic debate, “in December of 2007—before the big crash that we had—and I basically said, ‘Cut it out! Quit foreclosing on homes! Quit engaging in these kinds of speculative behaviors!’ ” Even Donald Trump has gotten in on the act. “The hedge fund guys didn’t build this nation,” the billionaire Republican candidate told CBS. “These are guys who shift paper around and they get lucky.”

Given the magnitude of the past decade’s financial crisis, it isn’t surprising that political opportunists are running against “Wall Street.” What’s surprising is how unsophisticated the arguments have become. Attacking finance, an industry that, according to the Bureau of Labor Statistics, employs six million people in the U.S., the vast majority of whom are in the middle class, has become an intellectual freebie.

Those of us committed to the industry feel no need to defend the indefensible—like predatory lending—committed in the name of “financial innovation.” We also don’t oppose common-sense regulations such as higher capital requirements for companies considered too big to fail.

Still, many of us are saddened by how little political leaders and pundits understand capital markets or appreciate their role in powering the greatest economic engine the world has ever known. Many of them seem to see banks as useful only for storing wealth and facilitating transactions—providing savings accounts and debit cards. Virtually no attention is paid to the next step, which is turning those deposits into capital. Money that banks lend to businesses is transformed into productive resources—factories, machine tools, trucks and the like.

The West’s establishment of property rights, and the banking system that grew up around them, turned assets into capital—and the ambitions of entrepreneurs and inventors into reality. Modern banking, while imperfect and subject at times to excess, has been an enormous contributor to human progress, which has put a serious dent in the crushing poverty that was once, even among Western countries, the norm rather than the exception.

The ability to raise capital breathed life into the dreams of Vanderbilt and Rockefeller, Gates and Jobs. Charlie Merrill, co-founder of Merrill Lynch, was the first to understand that the distinction between “Wall Street” and “Main Street” was artificial. He believed that the average American—not just the wealthy—should be able to buy shares in the country’s greatest companies. His legacy has allowed untold millions of savers to put money in the stock market and retire in comfort.

Listening to the politicians, populists and pundits, one might be forgiven for thinking that Wall Street is comprised only of soulless overachievers who will do anything to make a buck. High finance, like any other business, does have its fair share of scoundrels. But the financial-services industry also includes hundreds of thousands of regular, middle-class people. They take the subway to work. They worry about paying the mortgage and sending their children to college. And they do their best to provide their clients with quality advice and good service.

Since the financial crisis, it has been increasingly popular to draw distinctions between Americans: rich and poor, black and white, men and women, whatever. It would be nice to see a political candidate emerge who encouraged everyone to remember that America is best when we’re all in this thing together. Perhaps we can look to Muhammad Ali for inspiration. The writer George Plimpton claimed that the great boxer once recited the shortest poem in the English language at a Harvard ceremony: “Me / We.” That’s half the length of Ogden Nash’s “Fleas”—“Adam / Had ’em”—and twice as profound.

“Me / We,” indeed. It even fits on a campaign button.

Focus on the Data as Markets Turn Volatile

By: Rissmiller, 10/10/2014

Fed QE3 is ending, and the markets have turned volatile.  But economic policymakers are scientists, and continue to watch the data.  There’s worry about Europe, but U.K. policymakers (who are more exposed than their U.S. counterparts) held steady.  No panic yet.

Back at home, the Fed’s Labor Market Conditions Index (LMCI) is showing continued improvement in U.S. jobs.  That’s the same story told by weekly jobless claims, which declined to 287,000 last week, pulling the 4 wk.avg. down to 287,750 (the lowest in over 8 years).  The JOLTS job-openings rate also rose to a new cycle high in August.

As we’ve noted previously, the market seems likely to focus on those economic indicators that are 1) leading and 2) released in a timely manner.  Of course, a series like jobless claims measures only half of labor market activity, since it looks at firing, not hiring. But claims are very timely, given their weekly release, and continue to capture key labor market swings.  In an odd way, the Fed’s LMCI may have just made jobless claims more important to watch.

Don Rissmiller
Strategas Research Partners