Select language, opens an overlay

Comment

Community comment are the opinions of contributing users. These comment do not represent the opinions of Omaha Public Library.
Dec 13, 2017gaetanlion rated this title 2 out of 5 stars
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.