OK, make fun of the president's candid, if slightly Freudian, comments about Wall Street. Mock the comments about Wall Street getting drunk on a bunch of "fancy financial instruments." Offer bloggy asides about the president's penchant for metaphors straight from the therapeutic school: Wall Street as a drunk, America addicted to oil. Ask what he, a Harvard M.B.A., was up to while the Street was imbibing so eagerly. Wonder why he didn't vet his remarks with Henry Paulson (well, Paulson is a Wall Streeter).
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The fact is, politically, Bush wasn't saying anything crazy. By design or by accident -- turn those cameras off! -- the president tapped into an anti-Wall Street, anti-finance vein with a venerable history and a rising share price. And his comments, if only because they were YouTubed across creation, will play a role in where we go from here. The relevant part of his commentary was not the "drunk" bit, it was the argument -- perhaps that's overstating it -- that Wall Street had to sober up after its overuse of "fancy financial instruments." The implication: We should get rid of anything that's "fancy." This is not very precise. Is he talking about structured finance? Derivatives? Converts? Or would he consider high-yield debt and leveraged loans "fancy"? (If he does, Milken will never get that pardon.) Does he think shorting fits that designation? And if he does, then naked shorting is beyond fancy and into the realm of the perversely baroque, like Mojitos or something French.
In a sense the president expresses a common wish to turn the clock back and return to an age when a stock was a stock and a bond was blue chip, linked to a "real" asset and sold by a guy with a J. Press suit and a lockjaw accent (sort of like when the Bush family first made its fortune on Wall Street). There is a distinctive psychology underlying this. First, Wall Street as an amorphous entity was seduced by the mere presence of those instruments. If we can just get rid of structured finance, everything will be swell again (this is the therapeutic meme: Don't blame the person, blame the temptation). Second, let's not act too proactively, it's just a hangover that will pass. Third, he's making a governance statement, implicitly coming down on the side of companies when he regrets the direction finance has gone. It's as if he's expressing a nostalgia for an era when corporations -- a relatively few corporations -- dominated a much smaller Wall Street, an era that began to end in the '60s.
Now there are so many things wrong with this that it's hard to know where to begin. I'm not taking Wall Street off the hook; it did participate in a mania, though it was one larger than itself and it included politicians of both parties. Bush himself liked to bask in the job and GDP growth in part attributable to the bubble. But the crisis is more fundamental than a hangover. Finance not only employs a ton of people and makes up a sizeable chunk of equity markets in the U.S., but beneath the drunken antics does generate real economic benefits. Separating good from bad is difficult. Not only are markets intertwined, but so too are financial instruments, fancy or plain. The current hibernaton of structured finance is a major blow to Wall Street earnings, but also to a variety of industries that feed off Wall Street in some way or the other. And we are not alone on this benighted globe. Elimination of the most advanced tools of finance in the U.S. will, as Paulson reminds us, only send them offshore. Turning the clock on Wall Street also suggests that we reject the free flow of capital and revisit our traditional support for globalization, not to say shun several generations worth of highly exportable intellectual property in the form of financial innovation. Give us back our Black-Scholes!
That said, maybe the president was just trying to be funny. Ha. - Robert Teitelman
