Don't Fight Regulation
On balance, the values that drove Wall Street worked out very well for thousands of Wall Streeters who subscribed to them and lived by them. Those values -- principally maximization of profit and short-term horizons -- also contributed mightily to the global economic turmoil, the worst of which was averted, we hope, not by leadership on the Street, but by a series of aggressive government interventions, some of which have worked better than others.
But despite the downfall of Lehman, and the pain that caused many of its people, the "lesson" such as it is, is to make sure you are "too big to fail." That, of course, is likely to produce a continuation of the behavior that led to both all that wealth accumulation and to the mess we are in. See, for example, the creation of financial instruments such as bundling distressed-sold insurance policies.
There is room right now for leadership that might be able to thread the needle and do well while doing good. Can a Wall Street firm become a commercial success by distinguishing itself with a commitment to accountability, transparency, and long-term profitable stability? Perhaps. But there's not a lot of precedent. Gambling is gambling, and the rewards are always going to go to the person who walks away from the table with the most money. Wall Street has little incentive to reform itself by changing values that have worked so well for most of its past.
Government is going to step in. The best we can hope for is that some far-sighted bankers will work with the Congress rather than fight it in crafting legislation and subsequent regulations that will embed or at least incentivize transparency, accountability and longer-term thinking into the business of Wall Street. They will be criticized by their colleagues and accused of selling out, but that kind of leadership might produce legislation that will curb the market excesses without unduly undermining the creativity and entrepreneurship that drives growth.
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