A Month of Anniversaries

Monday marked a momentous occasion: Occupy Wall Street’s (OWS) first anniversary. In honor of the event, protesters were arrested during a march in New York City to the Financial District. Additional events apparently include plans to close down Wall Street and “block access to the New York Stock Exchange.”

But overall, OWS’s message seems as confused as ever to me. Topics at a Saturday rally leading up to the anniversary included personal debt, capitalism and fracking. One protester admitted joining the demonstration out of “‘dissatisfaction with the economy’”—without being very specific about it. Presumably he’s frustrated (understandably) with still-high unemployment. Or maybe he’s frustrated by evidence of crony capitalism—when the government tries to pick winners and losers in the private economy. (Ahem, Solyndra.) But any way you slice it, the connection to Wall Street seems rather tangential at best—aside from maybe “capitalism,” which is fortuitously broad enough to encompass plenty of topics.

Lest we forget, though, Monday also marked the anniversary of AIG’s bankruptcy and effective nationalization four years ago—just one of several momentous September anniversaries tied to 2008’s financial crisis. As a brief refresher, in the wake of Bear Stearns’s March 2008 sale to JP Morgan, the federal government (namely, Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson) proceeded to address successive companies in dire straits quite differently. For example, Bear Stearns was effectively forced to sell itself (for a relative song) to JP Morgan. Lehman Brothers was instead allowed to go bankrupt—giving surviving firms the chance to purchase its assets at bargain-basement prices—and AIG was effectively nationalized. Meanwhile, Merrill Lynch sold itself to Bank of America, and Goldman Sachs and Morgan Stanley—the last major investment banks standing—filed for and were granted permission to become bank holding companies.

Voila—Wall Street as we knew it was gone. Vanished. In retrospect, it was a rather odd way to handle the financial crisis, particularly given there were many steps the federal government could have instead taken to avert the magnitude of panic we saw. For example, the government could have suspended mark-to-market fair-value accounting rules, which were silently ripping through bank balance sheets, creating something of a self-fulfilling prophecy as firms were forced to write down assets to fire-sale prices.

Or the government could have helped facilitate purchases of unhealthy, struggling companies by those larger and financially sounder—an action they took in some, but not all, cases. Or the Fed could have opened the discount window wide and cut the discount rate—actions entirely within its purview and intended for use in just such liquidity crunches. (And something they did do, eventually.)

Yes, hindsight is 20/20, and we wouldn’t have expected any group of politicians to do it perfectly, but, largely because of the uncertainty the government created by handling each situation differently, we witnessed one of the largest panics in history. And in the course of basically one month—September 2008—the federal government had singlehandedly, without passing a single new piece of legislation, dismantled Wall Street as we knew it and unleashed myriad dislocations on markets. And I’d argue to some extent, we’re still recovering from those decisions made rather precipitously four years ago. That folks are frustrated at the widespread and deep impacts 2008 had is understandable.

But protesting “Wall Street” is an odd choice, no matter your quibble with the status quo. If your gripe is still-high unemployment, rest assured employment historically recovers well after the economy. If anything will help, it’s likely freeing businesses to make forward-looking decisions based on their ability to successfully compete in today’s global market.

If you’re frustrated about perceived “crony capitalism,” your recourse is largely to effect change with your vote because the reality is the popularity and existence of crony capitalism can largely be blamed on politicians, who are continually seeking to curry whatever favor they can. Blaming corporations alone seems misplaced, to me—that ire is better directed at politicians, not Wall Street.

If your beef is with “overpaid” corporate executives remember: Wages are almost entirely a function of supply and demand—as are nearly all prices in a free-market economy. So if the supply of eligible candidates is relatively constrained—as is undoubtedly the case with qualified CEOs, just as it is with professional athletes, actors, etc.—wages will by definition be high.

And if you think capitalism “doesn’t work” ... I can’t help you. I guess the only advice I could offer would be to move to North Korea or Cuba and see how “non-capitalism” is working out for them.

One year on, Occupy Wall Street still seems a rather confused outfit, to me—particularly when politicians seem a much more likely culprit for today’s economic dislocations. The reality is we need more capitalism, not less. We need more Wall Street and less Washington. We need unfettered markets fostering intense, productivity- and efficiency-inducing competition and innovation. Because it is precisely competition and innovation that lead ultimately to greater and more efficient wealth creation. The sooner we allow that to proceed unimpeded, the sooner there’s no need for movements like Occupy Wall Street, however misguided.