The news is filled with stories of Wall Street and banker misconduct — and rightly so. Interest rate rigging, phony interest rate bids, defrauding investors, irresponsible lending, wildly — and I mean WILDLY — oppressive practices towards credit card borrowers. All of these things have happened.
They are betrayals of the duty of trust that Wall Street owes America for the privilege of handling America’s money. Wall Street owes America a huge amount for allowing so many of Wall Street’s practitioners to become rich. They should not forget it.
But let’s also not forget that America and the world owe Wall Street a great deal as well, and that usually gets forgotten.
Wall Street has perfected a system in which the ordinary investor can own a piece of the corporate structure in the whole world. Usually, if the investor is even a little bit careful, these investments can be made at extremely low cost, with minimal fees. Usually, if the investor is even a tiny bit prudent, the investments can be made with sufficient diversification in cash and bonds and in various industries of various sizes and in companies with high and low capitalization so that even in bad times, the investor’s risk is limited.
The investor in Peoria can with a click of a mouse button get her investments diversified from Beijing to Bangalore and Brazil. The access to investment opportunities is stupefyingly good and usually at low cost.
Just as important, Wall Street has made it possible for investors to have instant liquidity. The investor can get his proceeds out within a matter of minutes. Again, the cost is usually minimal. This is an innovation that has never existed until Wall Street made it possible. We owe Wall Street for that liquidity, which takes some doing.
Because stocks fluctuate substantially, they pay off at a much higher rate of return than almost any other investment over long periods. This means that the prudent investor can gain access to a high yielding investment with extreme ease and if he is so positioned mentally and financially, can hold on to those investments and their dividends until time allows them to show their superior returns.
This is an extraordinary benefit to people planning for retirement and an extreme benefit to any careful saver/investor over long periods.
Wall Street has also made it convenient for industry all over the world to raise money for startups (now some of this is done by venture capital and private equity), for expansion of existing entities, and for modernization.
Wall Street has facilitated making mortgages available to be offered to home buyers on a scale and with an ease that would have been unimaginable only a few decades ago. By pooling together mortgages, then selling pieces of those pools, money can be made available to buyers who would otherwise have been shut out of owning a home. To be sure, when this is done irresponsibly, the results can be disastrous. But when done carefully, the results can allow families to own homes for a lifetime.
I spent a large part of my life investigating and reporting on Wall Street misconduct. I know it really exists. I know that some extremely venal people work on The Street and some whose respect for law is minimal.
But I also know that Wall Street has made some contributions to saving, investing, retirement, and home ownership without which life as we know it would not be possible.
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