WSJ's End of Wall Street: Don't Order The Tombstone Just Yet

It’s nice to be back after the holidays.

I just watched a series of short videos from the Wall Street Journal’s Digital Network. The series is called the “End of Wall Street”. It is a short oral history of the past year since the demise of Bear Stearns and the current crisis. It ends with a part called “What Happens Next”, yes the biggest question in the world, right next to the last cyclon cylon on Battlestar Galactica. It’s a nice piece of journalism even with the mood inducing sad piano.

Follow this up with another WSJ story on Morgan Stanley written by Denis Berman: “Answering Morgan Stanley Riddle” about the possible successors to CEO John Mack. The two top contenders are James Gorman – longtime brokerage guy and Walid Chammah the institutional securities guy. Both of these guys represent what Wall Street has always been about: Sales, Trading, Research and eventually core Investment Banking. I think we have witnessed (first understatement of the year) the end of financial alchemy of complex assets with neatly model risk assumptions passed to investors as securities, those days to some degree, as long as memory holds, are over (whew!). It is one of the questions I will look to ask Bill Janeway and Richard Bookstaber at Money:Tech as they continue their conversation from last year.

In fact a return to fundamental investing (with some help from the Internet, RSS & social media) is upon us. As sell side firms reduce the number of companies they cover, being able to do ‘real’ research and find proprietary data is an advantage, again.

Back to MS as a barometer for the Street as a whole, the final sentence in the article is the money quote,

“The CEO pick will say a lot about the firm’s vision of itself. And whether Wall Street has, at last, died or survived.”

If the choice is between a brokerage guy and a markets guy — that should tell you where we are going – clients and trading.

The good news is that Wall Street never really dies, firms go under or get acquired, but creative destruction always takes place. Just because MS & Goldman Sachs are bank holding companies doesn’t mean they are going to stay that way forever – my own hunch is that this is a holding action to provide stability, as we all start to understand the new rules. In the next few months and years, the shackles of stability and emerging competitors will give way to prudent risk seeking and higher profits. It’s just human nature.

As long as people seek to do something more than earn a risk free return and have capital to invest, Wall Street survives. If it didn’t die after ’29, tariffs, and a World War, the Great Panic of 2008 isn’t going to kill it.

  • Robert Passarella

    Forgive the spelling mistake — I know it’s Cylon and not cyclon


  • As you say, Wall Street won’t die. It will hunker down, be contrite until the crisis is over. If the government decides to re-regulate the industry, as it did after 1929, well, regulations can be repealed every other generation or so. These things go in cycles.

    I wouldn’t even bet on the decline of derivatives based securities. The “portfolio insurance” debacle in the 1987 crash didn’t even dent the innovative use of derivatives.

    Whatever lessons we learn from the current crisis, you can be sure we’ll forget them and be back in some other major financial crisis in about 60 years from now.

  • Thanks for the spelling correction. It was driving me crazy ;-).

    I agree with you and Alex, and I’m hopeful there will be some re-regulation; at least enough to make it a little more difficult for the greediest of the little piggies to have unfettered access to the trough.

    Alex, however, makes it sound a bit like everything is perfectly cyclical and will eventually return from whence it came. I prefer to think there is some evolutionary momentum in our economy and society, and that it isn’t some grotesque analog of Intelligent Design.

    We do frequently forget the lessons we learn. Where I labor we sometimes refer to them as lessons experienced (not, unfortunately, learned). Nevertheless, I am hopeful the changes new collaboration and communication concepts and designs (dare I use the term Web 2.0?) portend for democracy and citizen participation will carry us a bit further down the path toward economic cooperation and civility.

  • As some one in the investment game.. Im not sure I can totally agree with the “doom and gloom” about Wall St.

    I will admit I do look forward to the vast restructure and new laws that have been discussed by the SEC.

    The investment animal can eat up the litte guy in a minute if it isnt held in check somehow. (As shown to us in both the 1920’s and the current climate as well)