Thursday, February 03, 2011

A Message from the Founder of PIMCO

Frank Pasquale

As Bryce Covert notes, "pay on Wall Street broke a record last year, hitting $135 billion" out of firm revenue of $417 billion. "Legerdemath" helps drive those results; as one former member of a corporate derivatives team puts it, "whenever possible we used our superior knowledge to manipulate the pricing of the trade in our favor." And pity the poor pension fund that asks for some help in currency trading.

Folks like Jack Bogle have long lamented these sharp practices. Now Bill Gross, the founder of PIMCO, has a stinging indictment of Wall Street as well:

As a profession we have failed miserably at our primary function – the efficient and productive allocation of capital: The S&L debacle of the early 1980s, the Asian crisis, LTCM, dotcoms, subprimes, Lehman and the resurrection, instead of the reformation, of Wall Street, are major sins of the modern era of money. . . .

Financiers have lost their high ground and, if truth be told, we began to lose it a long time ago when we figured out that money was more than a medium of exchange or a poor substitute for a store of value. We figured out a turbocharged way to make money with money and proclaimed ourselves geniuses in the process. Well, we’re not. We may be categorized as “opportunists,” to be generous, but society’s “paragons” and a legitimate destination for a significant percentage of college graduates? Hardly. . . .

One of this country’s premier investment banks paid each of its 26,000 employees an average of $370,000 in 2010, nearly ten times the take-home pay of other American workers. Almost a quarter of the 400 wealthiest people on Forbes annual richest list make their money from money, whereas only 8% could make that claim in its first issue in 1982. . . .

Last week, during a radio show on recent mob busts, about half the callers mocked law enforcers' decision to prioritize goodfellas over bankers. (As one commenter colorfully put it, "put down the donuts and Gambino flow charts and go after Wall Street!"). But, as Michael Lewis and Bethany McLean explained in response, this isn't a question of going after bad apples. Perfectly legal acts are far more damaging than whatever criminality occurred. The finance system is broken, not merely failing to build a better future, but actively undermining the present. We need more people like Bogle and Gross to start criticizing it from within.

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