The Good Wall Street

I know that I have been going a little hard on Wall Street lately. With trillions of dollars of wealth being lost, it is easy to lose sight of the important function that Wall Street, and the investment community provide. Without our investment community, we would not be a strong and prosperous nation. It is not Wall Street’s essential function that I criticize; it is the abuse of trust that has occurred in some parts of “The Street,” by a relatively small (but powerful) number of people.

I have been a member of the investment and brokerage community for more than two decades. I have started two broker/dealer (brokerage) firms. I have sat at the feet of some of the masters. I have raised capital and I have worked with investors. So, when I criticize, I am not criticizing everyone, because there are many good advisors out there. I criticize those who put their own good ahead of their clients’ good.

There are many of us who were trained to “serve first,” putting the needs of our clients ahead those of ourselves. There is a great body of very good people who adhere to this philosophy. What bothers me is when a few tarnish the reputation of our entire profession.

Without the investment/financial community, there would be no ready access by business to essential capital. There would be no liquidity. Whether it is a firm on Wall Street, your insurance company, or you local bank, each of them plays an integral role in keeping America strong.

Investment banks often put their own capital on the line. They do this to help others, as well as earn profits. It often takes enormous risk to bring about innovation and financial growth. Someone had to put up the cash to build the garage businesses of Apple and Google. Someone had to look beyond the “kids” to see their ideas. They had to risk their capital and reputation on complex ideas that had every opportunity to fail. And for every Google, there are many companies you will never hear of.

I do not begrudge enormous profits to Wall Street. They deserved them for themselves and their clients, because it is their risk capital that fuels our nation’s financial engine. I just want them to do it honestly and ethically.

What bothers me is when smart people do dumb things, in the name of short-term profits. When people stop producing in favor of churning for profit, I get angry. This makes life difficult for all of us. It also stops future capital from being invested, which lowers the standard of living for everyone.

As a result of the current financial mess, there are (literally) trillions of dollars that are no longer available to invest. This will slow future economic growth. Our country has increased its national debt by more than 50%. This will drive up long-term interest rates. Finally, there will be a spate of new government regulations that will make it harder for honest, hard-working investment advisors and brokers to do business. We all lose.

The people who do things right, will have to pay for the sins of those who don’t. Yet, many of the people that brought us this ugly mess, will walk away with fat wallets and reputations intact.

Do not lose faith in the system. It is the best one we have. And be kind to your investment advisor, because the vast majority of them had no way of knowing that this was coming. Most of them do really want to see you prosper.

Be careful how you invest your money. Analyze carefully. Remember that long-term return is earned by taking calculated risks and staying the course through the ups and downs over time. Even well-conceived long-term investments can show substantial losses in the short run. You should take great care in understanding this, and do not panic when volatility occurs. Higher returns can only come with greater risk. Uneducated or inappropriate risks can lead to the erosion of capital. That is what happened to many people, even the most sophisticated, during this latest “crisis.” A long line of people decided to put their own benefits ahead of others. Unfortunately, we all must pay the price.

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