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Roger Martin
Dean/Scholar

Roger Martin

Roger Martin is Dean of the Rotman School of Management at the University of Toronto and author, most recently, of The Design of Business. His website is www.rogerlmartin.com

A Las Vegas Illusion

In response to the question: What does Wall Street have to change to produce better leaders, a different culture and a more long-term focus?

Forget about it. Don't even waste time thinking about it. The purpose of Wall Street firms is to trade value for their own benefit not to build value for the economy either short-term or long-term. While at one point in its history, a non-trivial part of Wall Street's activity involved financing the growth of American companies, that is now a minor piece of its business. Wall Street is primarily engaged in encouraging individuals and companies to trade value between one another and tolling the parties for the service, and trading against the outside economy for its own account.

On the retail side, one Wall Street brokerage firm convinces a buyer to buy a stock that its high-paid analysts declare to be "under-valued" while another Wall Street brokerage firm convinces a seller to unload the self-same stock that its high-paid analysts declare to be "over-valued." Randomly, one adviser is right and the other is wrong, but both take a commission on the transaction. Zero value is created - the buyer makes X and the seller loses X, or vice versa. But as with Las Vegas, a casino cut is shaved off the top.

On the corporate side, one Wall Street M&A department convinces a buyer that it can make a value-creating acquisition while another Wall Street M&A department convinces the seller that selling is "in the best interests of shareholders." Again, someone is right (typically the seller) and someone is wrong (typically the buyer) and the Wall Street firms each earn huge deal fees.

Neither creates value for the economy, nor is it intended in either case. Buyers and sellers for some reason, beyond any data or logic, believe that Wall Street has special insights that will work in their favor - even though there is another Wall Street firm working the other side of the transaction.

Wall Street has only one prerogative and that is to maintain the illusion that it adds value so that it can charge spectacular sums for its services. It is tough to be an awesome leader when your primary job is to maintain a set of self-serving illusions.

And increasingly, Wall Street has recognized that the above businesses earn chump-change in comparison to the consistently super-normal returns of their best business of all: proprietary trading, in which Wall Street makes supernormal returns trading for its own account. Given that Wall Street can't demonstrate that it provides valuable trading insight for outside clients, it begs the question: how can it earn super-normal returns trading on its own account? The answer is not a very reassuring one: proprietary trading based on proprietary information. And the very best proprietary information is information that comes closest to being illegal. This is not a zero-sum game. Wall Street wins and everybody else loses.

So I think it is foolish to think about Wall Street producing leaders that help build the economy. That isn't in the DNA. Wall Street exists, first and foremost, to benefit Wall Street and that isn't going to change anytime soon.

By Roger Martin

 |  September 16, 2009; 7:05 AM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Pirates of Wall Street

Pirates no longer wear patches over their right eye, brandish swords nor spit at your feet. They wear Armani suits, Gucci shoes and Robert Talbott ties. They have learned to speak proper English, cut their hair and attend ivy league colleges because that is a much safer way to steal the gold coins.

Pirates of Wall Street have one purpose and one purpose alone: to take our money. Not one of the multi millionaire Pirates has any intention of building value for the world economy, now or ever. Wall Streets collective mission is to convince you to give them your money so they can give it to me or visa versa while charging both of us a fee. Like a drug dealer but the broker gets paid to buy and sell. They take our money coming and going. And we happily give it to them for the dream, the hope, the addiction to the idea of winning more money.

We have been taught to believe that Wall Street has special knowledge, a crystal ball that works in their favor and they will impart that knowledge onto us. When in reality the broker is more a kin to a Las Vegas dealer at the black jack table. He deals, the cards fall as they may and we are charged to sit at the felt covered table. And we keep coming back.

The Pirates recognize its much more lucrative to charge a fee for the right to gamble than it is to actually investing in the stock of the companies they sell. With a smile and newly whitened teeth, they openly tell us that there is not guarantee that past earnings is reflective of potential future gains. And we keep giving him our money.

The Pirates of Wall Street have no intention of creating value for the economy, public company’s or their clients. Like children waiting for Santa Claus on Christmas Eve, we believe that if we have made our beds and brushed our teeth our broker will reward us.

Well Virginia, he won’t reward you. Because Wall Street is not the North Pole and your Broker is not Santa Claus. Wall Street is the emperor and we are it’s subjects unwilling to expose it’s nakedness in exchange for the illusion that we may one day be rich too. Do you want to be rich?


Posted by: luvkamdeux | September 19, 2009 8:11 PM
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The world's largest casino - Wall Street. Is it not great that the largest percentage of our GDP is accounted for by the financial scheme industry? I just hope that enough government action will demoralize them enough so that smart college graduates now and in the future end up pursuing careers in more valued-added industries which will improve our standard of living.

Posted by: AD11 | September 19, 2009 5:21 PM
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...the scam is to promote the idea that the value of a company is reflected in its current stock price * the number of outstanding shares, aka. its market capitalization.

That is why we just went through a massive international financial upheaval.

In other earth-shattering news, Experian just released recent research (paid for by Experian) which shows that single homeowners with good credit are the most likely to walk away from the debt incurred by a large purchase, and tend to do so with little if any warning.

Posted by: dubya1938 | September 19, 2009 3:39 PM
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Re:"Dear jdrd58,

Actually this is incorrect to the degree that a stock has 'book-value'. Book value is what is left when you subtract a company's liabilities from its assets. Book value per share is book-value divided by the outstanding shares. So a company with $100 of liabilities and $500 of assets has a total book vale of $400. and if there were 100 shares issued than the book value per share is $4. So there is an intrinsic value for companies with more assets than liabilities. This is the difference that causes stocks to be more than a Las Vegas bet.

Posted by: ralph5 "

No, that *is* the scam.
Any accounting rookie knows that assets=liabilities+shareholder value. The scam is in valuing the assets & liabilities..."shareholder value" is another game, but one that's a little more open to the public, because of the nature of corporate stocks themselves. The game is in pitching assets and liabilities at one level when they are, well and truly, at completely different levels. There's only one true way to evaluate the value of an asset or a liability: to sell it on the open market. But there are all kinds of rules and conventions that allow corporations to distort the value of both their assets and liabilities...as we found out recently when the "mark to market" rules were changed.

Not to mention sheer changes in policy like the government buying up corporate debt by the billions.

Posted by: dubya1938 | September 19, 2009 3:34 PM
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It should not be considered as a socialistic point of view, accurately, to examine the social stance & function of Wall Street within an overall sketch of society machanism analysis. But, the term of "illusion" gets the given description become more difficult to be understood. Instead, the complexion of such a huge economic existance carefuly measured along a rather detailed historical growth, a lateral & swift judgement seems to just be simpely presented. A simple question might be left to a possible further thinking exploration. Would people need to be persuaded, to accept Wall Street by those cool dissection though a little bit reluctantly possibly? Or, whatever people think about, the Wall Street ...

Posted by: yabinli | September 18, 2009 6:09 AM
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WallStreet is simply a Casino with Banker's Hours.

Nothing there, folks......

Posted by: murf1 | September 17, 2009 11:51 PM
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Thank you Mr.Martin- you have simply and elonquently described the "illusion" of the whole global (not just Wall street) funny money driven market capitalism sold to the delusional and gullible public as 'wealth creation".
The sooner Joe public wakes up to the ego maniacs who run that market for their own personal benifit the sooner we shall get back to some form of sanity.
A casino cannot survive if there sre NO players. We do not need regulation as such. What we need is a quiet revolt where we refuse to play.

Posted by: Charles15 | September 17, 2009 9:50 PM
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"Better leaders" said, 'Dean Martin' (couldn't resist) .... we thought that you said "Better liters [lee-ter].. so we just raised the price.

A most insightful and well-written article.

Posted by: John_Chas_Webb | September 17, 2009 9:39 PM
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Wall Street is a suckers paradise and circus.

Find good companies that have real worth and as an investor you O.K. Let the other idiots go broke.

Posted by: peterroach | September 17, 2009 8:48 PM
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Of course, the Foxes are taking excellent care of the Hens. Still no word from Congress on reinstatement of Glass-Steagall or repeal of Gramm-Leach. And the beat goes on.

Posted by: lionelroger | September 17, 2009 7:06 PM
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The situation that Mr. Martin cynically but accurately describes is worse than adding no value. The financial instruments such as CDOs, Credit Default Swaps and Special Investment Vehicles that Wall Street created gave the illusion of wealth being created.

When the housing market collapsed and the mortgage crisis finally hit, the emperor had no clothes. Financial firms' asset balances were "devalued", leading to massive losses - and there was no real liquidity to bail out firms such as AIG without the Federal Reserve taking majority ownership and infusing massive amounts of cash.

In reality the "values" supposedly represented by these "financial products" never existed.

Posted by: MillPond2 | September 17, 2009 6:14 PM
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It is amazing. This very clear summary explains that Wall Street is NOT doing added value, nor is it anything remotely resembling the "free market". Rather, what it is doing is EXTREMELY high risk gambling.

And yet the right wing morons who infest this board continue to bleat about "no regulation" "let the market work" and other such garbage.

What's the bet that if we knew who these people were they would be revealed to be Wall Street parasites like Andrew Hall and other such leeches who make billions by essentially robbing the rest of us?

Posted by: snortz_the_cat | September 17, 2009 5:40 PM
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Many moons ago, I attended the taping of a seminar on business and ethics by Tom Peters. It was held in Palo Alto, near Stanford. Well attended by numerous bright shiny MBA students or freshly minted graduates. Mr. Peters started by telling his audience of disciples that unless they had a minimum of 5 years business experience under their belts they had no business being in a MBA program. The silence was exceeded only by the hostility. Mr. Peters went on to explain how only real life experience would enable them to adapt the lessons learned in MBA programs to build successful businesses and communities.
Most of them didn't get it. This was 25 years ago. Seems like they still don't get it.
It is a fundamental difference between our system of education and that of other industrialized countries. Other countries still place a great deal of value on real life experience. We place value on SAT scores.

Posted by: BillFlint | September 17, 2009 5:31 PM
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Gvelanis wrote:
"Wall street really does perform a service. If people could not sell stock then they would never invest in start-ups. New businesses would never get off the ground. The devil is in the details. If this is all they did and if commissions were reasonable, the system would work as the founding fathers intended. Now factor in that they trade for their own accounts, form deals with the media, and get bailed out when they are on the wrong side of the trade and you have a system with broken wheels."

Wrong again. Start up businesses are NOT funded by the trading of stocks. Certain start ups are funded by venture capitalists (VCs) in the hope of building and growing a small business to the point of making an Initial Public Offering (IPO) which is traded on the stock market. The proceeds from the IPO is one of the ways VCs make their money. By the time a small business reaches the point of an IPO, it's either already profitable or super hyped like the Dot Com nonsense of a few years back. The majority of small business get off the ground through loans from family, friends, and personal finances. The stock market has little to do with the creation of small businesses.

Once again, it will be really nice if conservatives would actually know what they're talking about before they speak. Limbaugh is making your brain smooth.

Posted by: ehperkins1971 | September 17, 2009 5:03 PM
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Rational 4 wrote:
"This is simply describing a free market. In a free market, there is always, by definition, a happy buyer and a happy seller. That's what a free, consensual transaction means. Wall street operates through consensus. Government, by contrast, operates through force. I don't consent to pay taxes in exchange for something I think is of equal value. I pay taxes so I won't go to jail. The free market model benefits the economy by ensuring everybody gets what they most need, whereas the government model hurts the economy by forcing upon everyone what the government thinks they need at the price the government wants them to pay. Which model do you prefer? Which model is most efficient?"

Comments like these show that "free market" conservatives don't understand even basic economics. The key point in the article was the only way Wall Street firms make money is by having information no one else has. That is a direct violation of the basic tenants of economics. One of the rules of the game that makes "free market" capitalism "work" is the absence of asymetric information. Everyone is assumed to have the same information and those that make the best use of that information should come out ahead. That's the reason for anti insider trading laws; to keep the playing field level. The ordinary consumer doesn't have enough information gathering capacity to combat dishonest trading practices or see through the bovine feces that Wall Street puts out. The accursed government is only entity that has the leverage and information processing capacity to keep Wall Street honest. The notion of a "self regulating" Wall Street is about as real as winning the Powerball and Lotto jackpots three weeks in a row. Plausible but damn near impossible.

Furthermore, the basic assumptions of free market economics are horribly flawed to start with. The reason people are assumed to be "rational" actors is it makes the math easier. People by definition are not rational. Irrationality makes for very difficult mathematics. Also, in case you're unaware, there's some serious research going on into putting some reality into economic understanding.

It will be a really good day when conservatives take their heads out of their rectums, stop listening to fools like Glenn Beck, and read a book not written by Ayan Rand. We might actually achieve something in this country.

Posted by: ehperkins1971 | September 17, 2009 4:45 PM
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The end state of capitalism is called monopoly capitalism, where the rich and the advantaged bend all the rules in their favor, best of borrowing terms or APRs, ponzi schemes (a la Madoff)..and like every other product life cycle, capitalism goes through a growth phase, a stable phase and a decline..we are now well into the decline phase..with all the doggies fighting for morsels..and the situation becomes uglier and uglier as the rich and mighty become the proverbial elephant in the tent, pushing out all others to the periphery.

A new world order, a clean slate can change things - only a paradigm shift by mankind in the relentless pursuit of true value.

Robbing Peter to pay Paul is not capitalism. It is robbery - plain and simple. Adding value by innovation and less waste is..in the hinterland it is all robbing Peter to pay Paul..

Posted by: mdsubramonia | September 17, 2009 4:25 PM
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Some ofyou need to review the meaing of zero sum game:

In game theory and economic theory, zero-sum describes a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participant(s).

That does not mean one side gets all and the other side nothing.

It means that the assets in the transaction are finite, not that one side takes all.


Posted by: wtjoyce1956 | September 17, 2009 4:23 PM
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Wall street really does perform a service. If people could not sell stock then they would never invest in start-ups. New businesses would never get off the ground. The devil is in the details. If this is all they did and if commissions were reasonable, the system would work as the founding fathers intended. Now factor in that they trade for their own accounts, form deals with the media, and get bailed out when they are on the wrong side of the trade and you have a system with broken wheels.

Posted by: gvelanis | September 17, 2009 4:15 PM
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This is simply describing a free market. In a free market, there is always, by definition, a happy buyer and a happy seller. That's what a free, consensual transaction means. Wall street operates through consensus. Government, by contrast, operates through force. I don't consent to pay taxes in exchange for something I think is of equal value. I pay taxes so I won't go to jail. The free market model benefits the economy by ensuring everybody gets what they most need, whereas the government model hurts the economy by forcing upon everyone what the government thinks they need at the price the government wants them to pay. Which model do you prefer? Which model is most efficient?

Posted by: Rational4 | September 17, 2009 3:40 PM
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Why not tax every transaction Wall St. makes and use that money for health care, middle class tax breaks, and debt relief? if there was ever a good reason to do it, it is now.

Ralph was Right!

Posted by: atroncale1 | September 17, 2009 3:20 PM
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It is just a shell game, shuffling pieces of paper back and forth to gain commissions. They make nothing and do nothing except, as noted, build their personal wealth. They are true parasites. Madoff was just an extreme case. They are responsible for the crash of '29 and the recent crash.

Posted by: csintala79 | September 17, 2009 2:44 PM
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Yes, we need to move towards a socialistic state where the government controls every aspect of life, especially financial investment. Great Article!

Posted by: fx33187 | September 17, 2009 2:16 PM
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This is a fantastic article, I hope it gets linked, reposted and READ by everyone - especially investors and Congress.

It's particularly spot-on in the discussion of proprietary trading. People somehow think that the broker is acting on the clients behalf. If only more people knew that clients are just the suckers in the game.

Posted by: pilgrim1629 | September 17, 2009 2:07 PM
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This is not a depressing article. It is a timely and significant one. The recent financial disaster has had a profound effect on the ordinary people who funded the giant casino. True there have not been radical changes - but that is only because of the difficulty of the problem. The great news is that people will never believe the hype again like they used to. The information age has matured to the point where it's impossible to. The cat is out of the bag. The most profound truth that is emerging is not that the wall st guys are greedy. It is that they are incompetent. The bosses did not understand their own companies financial instruments. They were bamboozled by the same financial goobledegook that all the rest of us were. But that mystique - The authority of those who talk in knowing terms about finance using arcane and baffling words - has been fatally punctured. The emperor has no clothes. What is needed now is a new way to speak about big finance without allowing a few smartass hucksters to convince everybody that they know something we don't. If the boys at AIG had told their clients they wanted 10 billion to make a 'bet' - do you think they would have been given the money in the first place?

Posted by: Toby1B | September 17, 2009 1:58 PM
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A zero-sum game is like a friendly poker game. The sum of all wins and losses is zero. Wall street is like playing poker at a casino. The house takes a cut, so the sum or all wins and losses is always less than zero. On average, the house wins and the players lose.

Posted by: wpreader4 | September 17, 2009 1:51 PM
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You've definitely got it right, but I despair that articles like this one can or will do any good at all.

If the American people were going to get this message and demand change, they'd have gotten and demanded it by now. But they haven't, and no one in a position of power (financial or political) has the slightest interest in changing a system that benefits them so.

Now, an article I'd really be interested in reading would be one proposing an effective way to get the problem fixed, not just howling at the moon.

Posted by: Itzajob | September 17, 2009 1:21 PM
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This is exactly why I refuse to participate in the 401k scam they call a retirment program. They take your money and put it in an account where you cannot touch it without fees and penalties, but Wall street traders can touch it all they want. They use your money without your permission and gamble with it to make money for themselves and they are not charged a fee or a penalties for doing so. You however, cannot touch it and do not know they just made money off your money, therefore, you get none of their gambling winnings. Ignoracne is bliss right? People the 401k is a giant deceptive scam perpetrated on the public by the greedy titans of Wall Street, condoned and laundered by the greedy lying Bankers, and approved by your prostituting politicans. To think Bush wanted us to have our Social Security tied to this same evil scam is enough to make you get your guns and get crazy. I do not advocate violence, but we must stop Wall Street, the bankers, the Fed, and our politicans from destroying this country and turning it into a gambling casino scam of biblical proportions.

Posted by: TimeforChange | September 17, 2009 1:19 PM
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Prof. Martin echos Main Street; but I have little to reason to believe his words will reach the selective hearing of government leaders that are in bed with Wall St.

US democracy long ago became a plutocracy

Posted by: JohnDebba | September 17, 2009 1:11 PM
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What amazes me is why there isn't a series of international courts trying these guys. Look, they committed all manner of fraud, purposefully manipulated assets, prices, packaged and sold bogus financial instruments and sank the entire world's economy. That "global recession"? It was created in New York, right on Wall Street! These are international criminals and they are still up to their old crimes. If the world could put Hitler and his SS on trial, hang the worst of them and imprison others, and given that the economic wreckage created by Wall Street is the worst the world has seen since Hitler marched across Europe, given the magnitude of human suffering, deaths, poverty, wrecked lives, destroyed families, all by these greedy self serving crooks, why aren't they on trial in some international court?

Posted by: mibrooks27 | September 17, 2009 12:48 PM
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jdrd58 said:
"With the possible exception of stocks which pay dividends (ephemeral as they may be), stocks have NO intrinsic value. They are akin to a giant Ponzi scheme which relies on the belief that some idiot down the road will buy the worthless collection of what used to be pieces of paper and are now digital bits for more than the current idiot paid for them."

Dear jdrd58,

Actually this is incorrect to the degree that a stock has 'book-value'. Book value is what is left when you subtract a company's liabilities from its assets. Book value per share is book-value divided by the outstanding shares. So a company with $100 of liabilities and $500 of assets has a total book vale of $400. and if there were 100 shares issued than the book value per share is $4. So there is an intrinsic value for companies with more assets than liabilities. This is the difference that causes stocks to be more than a Las Vegas bet.

Posted by: ralph5 | September 17, 2009 12:40 PM
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Nothing new but depressing nevertheless.

Between the captains of Wall Street, our elected representatives in their pockets, and
toothless watchdog agencies of our government, what we have is a confederacy of
crooks.

Posted by: probashi | September 17, 2009 12:35 PM
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The author is essentially saying that Wall Street provides no value to the economy because it just collects fees on buy/sell decisions between different actors... Wall Street is basically the middle man.

Well I disagree... I think middle men do bring value because they're often the ones that organize a market and make it more efficient.

Audi makes cars (supply)... I want an Audi (demand)... but since Audi can't efficiently sell a car directly to me there's a network of car dealers (middle men) that help me satisfy my demands and sell Audi's supply.

It's the same deal with the buy/sell side of retail investing and M&A... sellers need to free some capital and buyers need to invest some capital.

So their value is in creating liquidity. Now , I would agree they're less necessary at the retail level since 1) investors can trade through the discount brokers and 2)companies must make information available to everybody equally... but at the M&A level, alot is still done behind closed doors and intermediaries are still useful.

In terms of the zero sum argument... I always thought a zero-sum game was one where one person won and everybody else lost.... so isn't your argument that this IS a zero sum game?

Posted by: AJohn1 | September 17, 2009 12:22 PM
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I am so grateful that Mr Martin is here to publicly say that the Emperors Of Wall street are wearing no clothes. As was stated, there was a time when WS did provide a service that was beneficial to America, but
now it is not much than a casino catering to people and organizations that have so much money that they don't know what to do with it. The old WS used to be fond of saying that it created jobs and wealth for America, while the WS of today only creates jobs in other countries and wealth for itself and some corporate high ups.
Sadly, it has morphed into nothing but a politically well connected dinosaur that could be replaced by some computer software.

Posted by: rkerg | September 17, 2009 12:13 PM
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The confusion of terms in this article is almost universal. What confusion? Interchangeably using the word "value" for "money," which leads to significant moral pitfalls. Money is one of the lower forms of "value." Value as a general term carries a far more positive connotation than mere money. To say that Wall Street exists only to increase "value" is false; it only exists to increase "money" or monetary value.

Posted by: jeangerard1 | September 17, 2009 12:06 PM
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Solution: stop giving them TRILLIONS$$$ in taxpayer guarantees and allow them to prosper (or fail) on their own merits. This all starts at the Federal Reserve. Support HR 1207 to audit the Fed.

Posted by: millionea7 | September 17, 2009 12:04 PM
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There's a stunning difference between the way the WSJ reports business news and the rest of the media. For example, the Post refers to a housing starts increase as mild, and the Journal describes an economy about to recover on the shoulders of a housing recovery in non-stop. A reduction in first time unemployment benefits by 12,000 still leaves the rolls with over 545,000 new beneficiaries. The Journal sees this as further evidence in the end of the recession. Surely there is a line between pandering and bloodthirsty.


Anyway, the article is a breath of fresh air in a stank atmosphere. Average people have to be vigilant because no brokers, dealers, traders, bankers, insurers are out to make you richer. The foremost lesson to learn investing is that just because a Merrill Lynch wants to keep your business it doesn't follow that they're interested in creating gains for you. For every dollar you lose they gain. Think of the DJIA as sitting down with Ivey or Doyle Bronson for a one on one Texas holdem' with your life's savings.

Posted by: KraftPaper | September 17, 2009 11:55 AM
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Tax all consideration earned by members of the financial community over $225,000 per year at a rate of 90%. Use these moneys to pay for the House version of Health Care reform.

Posted by: w04equals666 | September 17, 2009 11:41 AM
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Some comments:

First, the fact that the great majority seem not to understand this "real" function of Wall Street and the stock market is another example of Marx's notion of False Consciousness. People have no idea where their interests lie; they identify with the very people and institutions that exploit them.

Second, I can understand the frustration with the Democrats' response to the situation, but I don't understand what the political alternative is. Certainly not voting for the Republicans. Talk about putting the fox in charge of the hen house, or whatever the saying is.

Third, two quibbles. "To beg the question" does not mean to raise a question, which seems to be what Dr. Martin means. And, "This is not a zero-sum game. Wall Street wins and everybody else loses." I thought this is the definition of a "zero-sum game".

Posted by: Coasthaole | September 17, 2009 11:36 AM
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Wall Street has always made money churning stocks and using OPM (other people's money) to make a buck. End commission income and bonus incentives and you'll nix most of the problems because, as with any income derived from a commission, there is no incentive to produce anything but a viable transaction that benefits the agent in the transaction. Insinutating that there is an intrinsic value in generating an income off of OPM is insulting, but unfortunately, we've been brainwashed into believing that we can't manage our own money as well as the wizards can.

Posted by: JenAZ | September 17, 2009 11:31 AM
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More importantly, brokers do not disclose that most of the value in market index gains is due to two factors. First, the inflation caused by the overall economy as prices rise for the things we purchase day to day. Secondly, and more important is the demand inflation caused by the introduction of the IRA and the 401K type of retirement funds. Every year, millions of taxpayers invest GAZILLIONS of dollars for their retirement. Most of these investors are steered to mutual funds which are marketed with claims of potential Peter Lynch-like returns. GAZILLIONS (I know gazillion is not real)of dollars chasing a limited number of stocks can mean only one thing: huge over-valuing due to bidding up of stock prices in an attempt to duplicate Fidelity Magellan like returns. It is all a house of cards.

Posted by: w04equals666 | September 17, 2009 11:18 AM
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It is hardly the case that the only time Wall Street really adds anything to the economy is during an initial offering of stock or of bonds. Although it is true that the initial sale raises money for a company to grow, on every other transaction, one person's loss is another's gain (minus the commission paid the broker), but as the company grows, its stock price goes up to reflect its increased worth. When someone sells that stock for a higher price than what she paid, she's monetizing that company's growth. One could therefore say that Wall Street allows investors to monetize overall growth in the economy. It also de-monetizes an economy in a recession. This is an essential service Wall Street provides. Some of that money will go into a different stock, but some will be spent. That is also the way a retirement fund works.

Posted by: bvision | September 17, 2009 11:01 AM
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So if it's all completely FUBAR and broken, why hasn't ANYTHING AT ALL been done as far as efforts to reform, legislate and regulate this out of control industry!???? Obama and the Dems HAVE DONE ABSOLUTELY NOTHING to help prevent this from happening each and every year during bank bonus season. This is BS. I voted for the idiot Dems and will never do so again unless I see some major action and progress. DEMS, GET OUT OF THE POCKETS OF WALL STREET or YOU NEVER GET A VOTE FROM ME AGAIN

Posted by: Impeachbush99 | September 17, 2009 10:52 AM
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People need to remember that when someone is buying, someone is selling and vice versa, no matter whether the price is going up or down.

With the possible exception of stocks which pay dividends (ephemeral as they may be), stocks have NO intrinsic value. They are akin to a giant Ponzi scheme which relies on the belief that some idiot down the road will buy the worthless collection of what used to be pieces of paper and are now digital bits for more than the current idiot paid for them.

As Steven Pearlstein stated back in February, "But remember, these are traders, not investors."

Posted by: jdrd58 | September 17, 2009 10:48 AM
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Obama and the Dems continue the unjustified handouts to Wall Street to pay for their outrageous bonuses and compensation plans since these companies are no longer able to generate the profits themselves to pay these ridiculous salaries and bonuses...it's a WIN-WIN ALWAYS for Wall Street with the Dems in power, the great Obama Financial Industry Giveaway continues....

Posted by: Impeachbush99 | September 17, 2009 10:48 AM
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Great article that "speaks real truth to power." I worked in the financial services business for nine years and never heard management ever ask "How's the customer doing?" It was all sales and deal driven. It's time to shut down the casino and make Wall Street work for Main Street.

Posted by: Bill31648 | September 17, 2009 10:47 AM
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Follow up remark: Size and speed matter absolutely. So, yes, when things get "too big to fail" we are in a state of terminal corruption. And when the speed of transactions are measured in microseconds, thanks to super computers, we also enter a state of terminal corruption. There is no room is such a world for "investment" or "growth" or "development" or "innovation" [except in the math of the con game, which is what economics has become...]. Such a world creates a feedback loop of for self-reinforcing con game. We now all know this. We have seen the result. We know how to fix it. But I suspect that we won't, as power worships money and money enslaves power.

Posted by: eheath1 | September 17, 2009 10:45 AM
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Of course Mr. Martin is exactly right. What if fees were tied to success or failure? That is, if a client lost money on a transaction pushed by analyst, the analyst would get zero commission. Oh oh. I just said "commission" and we know that it's all about fees. It is one giant Ponzi scheme, and everyone knows it. Real reforms of Wall Street would be tied to timing, with the longer the term of holdings, the higher the return, if successful, to the broker. In other words: Commissions.

Posted by: eheath1 | September 17, 2009 10:37 AM
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FDA OVERSEES EVERYTHING AMERICANS INGEST, FROM FOOD TO DRUGS, AND HOW SUCH PRODUCTS ARE BEING LABELED - TO PROTECT THE PHYSICAL HEALTH OF THE NATION.

SEC (OR A SIMILAR ORGANIZATION) SHOULD DO THE SAME FOR OUR CITIZENRY'S FINANCIAL HEALTH. A SOCIAL CONTRACT, ESSENTIAL TO A DEMOCRACY, DOES NOT INCLUDE A FREE FOR ALL FINANCIAL MARKET THAT, AS I OFTEN COMPLAINED, IS ACTING LIKE "VEGAS ON HUDSON" FOR THE SOLE BENEFIT OF THE 'CASINO' OWNERS.

IN OTHER WORDS, ENOUGH IS ENOUGH. IF PETTY THIEVES GO TO JAIL WHEN CAUGHT, WHY THE WALL STREET SHARKS DON'T? THIS IS TYPICAL OF COUNTRIES WHERE CORRUPTION IS STANDARD BEHAVIOR, LIKE THE LATIN AMERICAN BANANA REPUBLICS, AFRICA AND THE MIDDLE EAST.

UNITED STATES SHOULD FOLLOW THE CHINESE EXAMPLE - THE ONE WE LIKE TO CRITICIZE SO MUCH: WE SHOULD DEAL WITH CRIMINALS, ALL CRIMINALS, RADICALLY AND EXPEDITIOUSLY. THIS WILL SUBSTANTIALLY IMPROVE THE QUALITY OF OUR LIVES AND EVENTUALLY HELP (EVEN IF MODESTLY) BALANCE OUR BUDGET!!

Posted by: jaysonrex | September 17, 2009 10:29 AM
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Great article that "speaks real truth to power." I worked in the financial services business for nine years and never heard management ever ask "How's the customer doing?" It was all sales and deal driven. It's time to shut down the casino and make Wall Street work for Main Street.

Posted by: Bill31648 | September 17, 2009 10:15 AM
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Dr. Martin seems to have summed it up beautifully in a few paragraphs.

One additional thought.

The age of the super-computer has made for a huge advantage to the Wall Street Bookies. High Frequency trading by robots and front running retail orders is the new normal. The robots create false volumes by singling out a big name cheap equity and trading it back and forth to a robot partner in greater and greater increments. Then close the trap ( and the profit ) on an unwitting investor attracted to the volume spike.

This market delusion has especially gotten a full head of steam in the last 6 months. Today's market is completely detached from fundamentals. Short sellers have been devastated by the robot games and simply stay away.

Wall Street has become Las Vegas without any Gaming Control Commission. It can only end badly one day soon.

Posted by: bandcyuk | September 17, 2009 10:06 AM
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These comments are closer to the truth. Of course, the reality is that those promoting the idea of training better leaders are either just lost in the past or promoting their own flavor of snake oil in their own self interest. If we want better performance out of Wall Street, we need to deal with the problem the same way we have with other problem areas. We have to create a regulatory framework that limits what is allowed so that there is more correspondence between the private interests of market participants and the public interest in their success.

Posted by: dnjake | September 17, 2009 9:57 AM
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Replace the word "Wall-Street" with "Washington D.C." and you've got another complete article canned and ready for publication.

Posted by: thecomedian | September 17, 2009 9:47 AM
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There exists a theory of history which says complexity is primary cause of decline of civilizations. Strikes me that Wall Street has become too complex to understand, much less regulate. Let us welcome signs of reduced complexity, like outlawing the derivatives and other complex mechanisms by which operators befuddle us and enrich themselves.

Posted by: paulco | September 17, 2009 9:41 AM
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It's sad that anyone even needs to say all of this... It's so obvious!

Posted by: tbrucia | September 17, 2009 9:36 AM
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