Ezra Klein writes in Newsweek:
After 10 hours and 43 minutes of testimony before the Senate’s Permanent Subcommittee on Investigations on Tuesday, the hapless Goldman Sachs employees and the angry senators interrogating them were still talking past each other. “I firmly believe that my conduct was correct,” said a tired-looking Fabrice Tourre, the Goldman employee who structured the Abacus trade that led to the SEC’s lawsuit against Goldman. Meanwhile, Sen. Carl Levin had used the word “s–tty” 12 times and Sen. Tom Coburn had reminded the witnesses that “we’re not that stupid.”
The problem for Tourre—and for Wall Street more broadly—is that they’re so intent on proving that what they did was legal that they can’t see that what they did was wrong. These are men (and they usually are men) of the market, and they played by the market’s rules. And the market’s rules are these: you make as much money as you can without actually going to jail. This is a world in which people are applauded for “blowing up the customer”—that is to say, offloading a crap product on a dim investor.
So why don’t t these Wall Street moneymakers consider what they did as wrong? Ezra explains….
During the 1980s and 1990s, economists in a variety of countries conducted a series of experiments that shocked their profession. The experiments were called “ultimatum bargaining games,” and they were very simple: one person was given a pot of money to dole out. The other person got to accept or reject the deal. But here was the catch: if the second person rejected the deal, neither party got any money at all.
Market man—and his bible, textbook economics—would’ve thought this easy. The second person should take any deal that’s offered. After all, even a bit of money is better than no money. But that’s not how it worked out. When the second person was offered less than 30 percent, they generally rejected the deal. This was true across countries, age groups, and even dollar amounts. “Apparently, responders do not behave in a self-interest-maximizing manner,” commented Ernst Fehr and Simon Gächter in a review of these experiments. Apparently not.
This brings us to a word that’s very important to most people but not very important to Wall Street: fairness. As the ultimatum experiments show, fairness is very important to the way most people make their economic decisions. But that particular quality is not very important to how Wall Street makes its decisions. Banks mislead customers, make money from betting against housing bubbles they help fuel, get bailed out with taxpayer dollars, and then pay out massive bonuses to their executives while the rest of the country is mired in a recession they caused. This might not be illegal, and the bailout might have been necessary to save our economy,but all of it is deeply unfair.
This ladies and gentlemen is why majority of Americans, unless you work on Wall Street, want reform. Not only do they want reform, but when polled on whether they want Wall Street reform or financial regulation;Wall Street reform polls better. People want to go back to the days of simple banking. No more secretive trading and hedging on the possible failure of somebody’s mortgage.