The Premise
Allowing business to flourish has salutary effects for all of us. Allowing people to pursue their own passions, and turn them into businesses by which they may profit from their own ideas, has given us our modern world. It has also generated vast amounts of wealth for many people.
Our equity markets have made this possible, as has the ability to access capital and take on debt. To the extent that investment and commercial banks enable this, they are indispensable to our system.
Wall Street I
Access to cheap money has also allowed a system in which private equity, investment banks, brokerages and other parties have been able to leverage their capital and indebt companies in ways that have enriched the investor, destroyed companies, and left many Americans without work, much of this with minimal risk to the investor. Much of this risk was financed by banks “too big to fail” and therefore underwritten by the taxpayer.
Many of the people who have orchestrated this (let’s call them “Wall Street”) have been paid (paid themselves?) very handsomely based on short term measures which are usually not linked to the long-term growth of a company or the economy. Moreover, the relatively short-term outlook may cause risks to be taken that can have significant long-term effects on the economy. While these risks may be rational from the short-term perspective of Wall Street and the individuals who stand to be richly compensated based on the risks they take, they may also be seen as gambling with other people’s livelihoods. When a company disappears, so do the jobs it created.
Wall Street II
The management and directorships (let’s also call them “Wall Street”) of publicly traded companies constitutes a fairly small subset of the population. Many executives of one company also sit on the boards of others. They recommend the slates for the boards of each other’s companies. They also sit on each other’s compensation committees and determine each other’s stock-incentive plans.
Executive suite pay as a multiple of employee pay has grown significantly since the introduction of stock-incentive plans. It can be argued that stock-incentive plans have influenced the executive to maximize share value over the short term, discount risks to the long-term health of a company, and disregard the possible effect on the employee, his job and his future.
The Consequence
Certain people are getting richer, while many others are without jobs, and many many others are seeing their own economic growth stagnate. Some perceive that the cards are stacked in favor of “Wall Street” in such a manner as to be detrimental to the long-term employment and economic prospects of the rest of us. Some of them have chosen to Occupy Wall Street.
The Question
What can or should we as a society do to align “Wall Street” with the goals of long-term economic growth, the foundation of new business, and the creation of stable jobs and growing American employment?
