eFinancialCareers

Is Wall Street little better than a conspiracy of thieves, run by and for its employees? That seems to be the guiding thread behind much invective being unleashed in print against certain aspects of the housing legislation soon to become law.

"Borrowers who are in trouble on their mortgages have seen their government move slowly - or not all - to help them," wrote Gretchen Morgenson in last Sunday's New York Times. "But banks and the executives who ran them are quickly deemed worthy of taxpayer bailouts."

In a similar vein, James Grant wrote in The Wall Street Journal that big brokerage firms "open their doors to pay their employees - specifically, to maximize employee compensation in the short run…. The more immediate risk today is that Wall Street, sweating to fill out this year's bonus pool, runs itself and the rest of the American financial system right over a cliff."

Manifestoes of Envy

Reading through these manifestoes, the class-envy they express feels tangible: You can almost see the gooey stuff oozing through the text and clogging your monitor.

For a pundit, it sure is handy to have a ready-made bogeyman to attack. Since the average Wall Street worker earns in the neighborhood of $200,000, few of Morgenson's readers will bother drawing lines between bank executives, shareholders and employees. As far as her target audience is concerned, they're all "Wall Street," so they're all the enemy. As someone once said about a different enemy: "Kill 'em all. Let God sort 'em out."

To be sure, Morgenson at least offers some grudging recognition that financial institutions play a necessary role in the economy. If Fannie Mae and Freddie Mac "had been left for road kill," she writes, "the mortgage market would have ground to a halt and a financial conflagration of historic and devastating proportions would have resulted."

Nevertheless, she intones, "for executives and directors of the big companies who financed these loans, who grew wealthy while the getting was good, the taxpayer is coming to the rescue."

Glaring Errors

I see at least three glaring errors in this picture - starting with the obvious confusion about just which individuals are being "rescued." Jimmy Cayne derived precious little benefit when Uncle Sam "rescued" his institution. I doubt the top executives or shareholders in Fannie Mae or Freddie Mac will fare much better if they go down that road.

In the second place, such polemics conveniently overlook other subsidies to middle-class borrowers, chiefly the mortgage interest tax deduction, and financial safety nets such as the FDIC, which protect depositors, not investors.

What's more, the less-well-off appear to have been the intended beneficiaries of Fannie and Freddie's increased purchases of shaky loans earlier this decade. Both Congress and the Department of Housing and Urban Development repeatedly pressed the two firms to step up their purchases of mortgages for "affordable" housing. That catchall term covers such things as loans to "first-time homebuyers, especially minority first-time homebuyers, credit impaired borrowers, the rental housing market, including loan purchases for rehabilitation of these properties, and CRA (Community Reinvestment Act) loans," according to congressional testimony that paraphrased HUD's own analysis.

Wall Street Does More Than Enrich Crooks

Finally, the Wall Street-bashers also appear blissfully ignorant of the broad economic goals that banks serve. A sound financial system is the circulatory system of the economy, delivering credit and capital to businesses large and small. Any crisis that threatens the financial system, per se threatens the entire economy. That is why safeguarding the stability of the financial system is the first job of overseers and policy makers, including the Federal Reserve and the Treasury.

When a pundit like Morgenson states the Fed bailout of Bear Stearns benefited Bear's "big and wealthy counterparties," she seems to feel that name-calling can somehow overshadow the regulators' overriding mission of averting a system-wide collapse. That mission sometimes requires policy makers to step in and manage a crisis, rather than stand back and let it spiral as in 1929.

She sounds a little like people who denounce criminal-defense attorneys for defending criminals in court.