It's been decades since the old investment and banking cultures gave way to a trading culture in which the driving principle behind every dollar traded or leveraged is to use whatever advantage you have to "rip the face" off some other trader, brag about it on the interoffice e-mail and take 20 percent off the top as a bonus. Raising and efficiently allocating capital for businesses and households are mere pretexts for a financial system that is now focused on reaping profits from high-frequency trading and sales of purely speculative instruments like synthetic CDOs [italics mine - DL].
In a trading culture, because buyer and seller are both customers, the Wall Street firm owes its loyalty to neither. It's free to be loyal only to itself. And things get even more complex when firms like Goldman use their own capital to take positions without disclosing it to anyone.
The fundamental truth about Wall Street firms is that they succeed by having better information than most of their customers. They gain this edge by doing more trades, in a wider variety of markets, than most of the people they trade with. And they gain it by underwriting the securities and structuring the derivatives that are being bought and sold.
More than the skill of its traders or the brilliance of its executives, it is this information asymmetry that is the source of Wall Street's outsize profits. It is information asymmetry that allows Wall Street to preserve its oligopoly and keep upstart competitors from gaining a foothold in the market. And as the SEC has reminded us once again, it is this information asymmetry that offers opportunities to manipulate markets and pull the wool over the eyes of even sophisticated investors.
Transparency for financial instruments, including derivatives. Transaction fees. Caps on bank size.
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