Why Wall Street Matters

Why Wall Street Matters

Book - 2017
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"Anti-bank sentiment has reached a boiling point in America. What started with Occupy Wall Street and Bill Maher satirically calling for the death of Wall Street bankers has culminated with Bernie Sanders pushing the dissolution of the big banks into the official 2016 Democratic platform. But in Cohan's estimation, that sentiment is not only woefully ill-informed, but dangerously naive. Starting with what Wall Street literally is and what it actually does, Cohan swiftly debunks all of the misinformed arguments against it while acknowledging the problems that fuel those feelings. We can be mad at the greed and excess, but at the end of the day, Wall Street is the capital in capitalism, and when its working right, is the invisible engine that powers the ideas we have and the lives we love"--
Publisher: New York : Random House, 2017
ISBN: 9780399590696
Branch Call Number: Business & Career 332.642 Coh


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Dec 13, 2017

Why Wall Street Matters. A missed opportunity.

The book is divided in two parts. The first 100 pages are excellent. They consist in an analytical narrative tracing the history of Wall Street. The next 50 pages are a rant.

Within this first part, Cohan mentions a few interesting facts.

The US taxpayers made a $16 billion profit on the supposedly nefarious bank bail-out that was part of the TARP fiscal program. This was due to the Government holding bank stock warrants. TARP was the most efficient, effective, and quickest fiscal initiative ever.

Also, the Financial Crisis did not have much to do with commercial banks, but more with investment banks such as Lehman Brothers (went bankrupt), Bear Stearns (was merged into JP Morgan), and Merrill Lynch (merged into BofA). The stand-alone bankruptcy of Lehman Brothers triggered an immediate freeze of the global capital markets.

In view of the above, Cohan logically advances that the political efforts to reinstate the Glass-Steagall Act of 1933 fully separating investment banks from commercial one would have exacerbated the Financial Crisis. Neither Merrill Lynch nor Bear Stearns could have been rescued and merged into stronger viable commercial banks.

The chapter on innovation is excellent. He details the development of securitization and mortgage backed securities (MBS) by Lew Ranieri at Salomon Brothers in 1977; and the development of Junk bonds by Mike Milken at Drexel Burnham in the same year. He also mentions the invention of credit default swaps (CDS) by Blythe Masters covering the credit risk of Exxon after the Valdez oil leak in 1989. However, Cohan does not explain why the MBS and CDS markets worked perfectly well for several decades until they both blew up in the Financial Crisis starting in 2007.

If Cohan had stopped there, this would have made for a very short and very good book. Unfortunately, the second part is almost a diatribe. He attacks all bank regulations without discerning the ones that make sense (preventing money market funds to invest in securitization, requiring banks to hold more capital and boost their liquidity).

Also Cohan makes a case that everything we have and enjoy is thanks to Wall Street. In particular, Cohan advances that excessive regulations have constrained credit formation and restrained our economic growth to a stagnant 2% a year. However, the total level of credit in the economy has gone way up over the past decade. So, credit formation is not much the issue. The pace of US economic growth is due to sociodemographic factors. Our population is aging. Its growth is slowing. That means the majority of economic growth has to come from increase in labor productivity. When your labor is already very productive it is not possible to boost it by 2% a year over the long term. The latter would entail a living standard over 6 times greater than currently just a century down the road. Cohan by ignoring those sociodemographic facts and the overall credit formation in the economy makes flawed arguments regarding how critical Wall Street really is.

Mar 20, 2017

I highly recommend this book as an introduction to what the 2008 financial crisis was all about, and, as the title states "why Wall Street matters." It is aimed at the general reader who does not have a background in finance. The author explains something often ignored in political rhetoric about Wall Street: it plays a vital role in providing capital to America's businesses and industries, and to individuals. ( by facilitating mortgages, auto loans and credit cards). He feels it needs to be reformed, but not in the way envisioned by Dodd Frank, the Volker Rule, and Elizabeth Warren. Those reforms have greatly increased the time and money banks and Wall Street firms have to spend on compliance and have made them reluctant or unable to offer credit to business. Hence the slow growth that has plagued the economy for the past 7 years. Get rid of these regulations and change the compensation practices on the Street so that the personal finances of significant members of the a given institution. will be at risk if they engage in risky business practices

Mar 09, 2017

Before reading this book please, please, please first read David Dayen's masterful book, Chain of Title, and then read The Case For the Corporate Death Penalty, by Mary Kreiner Ramirez [and should you really wish to be thorough, Web of Debt by Ellen Brown, The Rich and the Super-Rich by Ferdinand Lundberg and Treasure Islands by Nicholas Shaxson]. The author does mention Venrock Associates, with mentioning that was the Rockefeller family [which made some original nifty investments in Intel, Apple, Microsoft and a few others - - how much did Forbes claim they were worth???? Never believe a magazine founded by the descendant of a major drug dealer!]

Mar 03, 2017

Easily read book by a former senior investment banker with a major theme of why Wall Street is so important to the US economy. The author is clearly pro-Wall Street, and strongly against Glass-Steagall, Dodd-Frank, the Volcker Rule, and Senator Elizabeth Warren. I must appreciate his well-summarized viewpoints, although generally disagree with him.


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