Friday, September 26, 2008

Main Street vs. Wall Street

There's been a lot of talk over the last week or so – or more – about how "Wall Street" has enjoyed themselves at the expense of "Main Street". To pick just two examples, Time Magazine's cover article last week was "How Wall Street Sold Out America"; and MSNBC currently has a good long story about all the people who are upset about the bailout plan.

I agree that there's a great deal of criticism that can rightly be leveled at the "greed is good" culture of Wall Street.

I have no desire to see my tax dollars go to fund $20MM golden parachutes for executives who've led their companies into financial ruin.

At the same time, we should all remember that these days, for all practical purposes, Wall Street is Main Street. Wall Street manages Main Street's 401k plans, its pension and retirement benefits, its mutual funds. Almost everybody I know owns stock in some company or another, or has a mortgage, or some sort of investment portfolio, and we complain if we pay more than 6% for our mortgage, or get less than 10% annual return on our stocks. Back in the late 90's, folks who weren't anybody in particular wanted to be day traders, or were, and made tons of money at it. And three years ago, almost everyone I knew was investing in real estate.

It's easy to point fingers at other people who were greedy and wanted to play the system – but we should all remember that we're the greedy bastards who wanted to play the system too. Of course, nobody on Main Street really understood what was happening or what really made the market keep going up and up, but then, neither did anyone on Wall Street. All we knew was that we each wanted a piece of the action. It's a motive at least as old as the 1637 crash of the Holland Tulip Bulb craze, and ten or twenty years from now, we're going to do it again. As the folks on Investopedia put it, "most market volatility is all our fault." That would be the case now as well.

As a result, I don't have a lot of sympathy with folks who argue against any sort of bailout on the basis that it puts taxpayers on the hook for someone else's excess. People don't realize that it's their money, and their financial system, which is at risk, and that a pretty good case can be made that it's their own excesses which are responsible for the risky state we're in. Paulson's response to the questions he was getting about taxpayers being on the hook was exactly right. It's not terribly good politics to point out how pretty much everyone in the country is at fault in this crisis, but it's the truth.

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