ECONOMY - Barbarians at the Gate, Financial Reform

"Wall Street’s Still-Warped Incentives" by WILLIAM D. COHAN, New York Times 9/2/2010

Excerpts

Once in a while, the written word touches a raw nerve.

Such was the case, it seems, with my July 7 column, “Let Goldman Be Goldman,” which took to task both the Obama administration and the Democratic-controlled Congress for “demonizing” Goldman Sachs, and much of the rest of Wall Street, in order to pass the Dodd-Frank financial reform law.

In the more than 200 responses to the piece, there was an interesting patois of expected vitriol — many Americans seem to know no bounds in their hatred of Goldman (and of those who dare defend it, even partially) and the Wall Street greed, arrogance and indifference the firm symbolizes for them — and a zen-like plea for reform.

One Salt Lake City reader (after paraphrasing a 2008 interview with writer Margaret Atwood where she purportedly said something to the effect of “Once we stop believing in something, it disappears”) predicted that if we “stop believing” in the “institutionism” of the banks, they will “cease being the paragon they have programmed us to believe they are and we can get on with the business of creating something more efficient, effective and empathetic.”

Given that Wall Street has become little more than an elaborate confidence game and that, according to F.C.I.C. chairman Philip Angelides, the nation’s 10 largest banks have increased their share of banking assets to 55 percent from 25 percent between 1990 and 2005, this reader could well be on to something.
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But the fact remains that the Dodd-Frank Act does nothing to change the terribly warped incentive system that continues to reward Wall Street bankers and traders for the revenues they produce by taking risks with other people’s money. It does nothing to hold bankers and traders responsible for their actions where it really matters — in their pocketbooks.

Bold emphasis mine

The problem is humans being what we are. Susceptible to the flashy salesman offering the "buy now or you'll miss out" deal. We tend to forget that NO salesman is in business for a customer's benefit. Buyer beware.