Wall Street, like all markets, was created to exchange money for products. In Wall Street’s case, the product was a share of an entrepreneur’s dream or of a business that wanted to expand. A few years ago, billionaire Dallas Maverick’s owner Mark Cuban said, “Wall Street used to be a place where you could raise capital and start a business. Now, it’s become a platform for hackers. It’s lost its purpose and vision.” Cuban’s hackers are also called “quants.” It’s short for quantitative analysts and their original purpose was to help companies manage risk. But they got into derivatives, credit default swaps, high frequency trading and all sorts of other shenanigans with just one purpose — make more money. And then it all came crashing down in 2008.
But Wall Street still rules. An article in the Harvard Business Review cites a study that found “78 percent of Chief Financial Officers would give up economic value and 55 percent would cancel a project with a positive net present value — that is, willingly harm their companies — to meet Wall Street’s targets.” Why? Because those CFO’s and other top executives profit personally when the price of the company’s stock goes up. Disappoint Wall Street, and your pay check goes down.
If you want to know how Boeing screwed up developing and building the 787, how focusing on short term profits hurts innovation, how Wall Street and the financial sector distribute wealth rather than create it, why so many of us believe that rich, powerful people must be right just because they’re rich and powerful, please read the article. If we don’t fix it, Nick Hanauer will prove to be a prophet, and the pitchforks will come out. It’s happened before, when progressive President Teddy Roosevelt used his pitchfork to break up some big, powerful monopolies. It will happen again if we don’t figure out how to get back to an economy that works for the many, not just the few.