Tuesday, August 26th, 2008
wall street runs this world

It’s the summer doldrums, with trading light and the market discourse proceeding at a languid pace, despite major developments in the credit crisis that is in its second year.  What better time to consider the state of Wall Street, that Coney Island of the MindNew Directions recently published a fiftieth anniversary edition of this Beat Generation classic by Lawrence Ferlinghetti, but it probably isn’t on too many reading lists in the Hamptons this week. for capitalists, once seemingly confined to lower Manhattan, but now everywhere at once.

The title of this posting comes from a song by Dr. John called “New York City Blues.”Not to be confused with the 1965 song with the same title by the Yardbirds; this one can be found on the album Afterglow. His survey of the city includes a simple phrase thrown in toward the end, “and Wall Street runs this world.”  No one who has perused the announcements in the style section of the Sunday Times could escape the fact; the investment business is the dominant vocation for those making commitments (and their parents), and that’s without including the lawyers, real estate agents, art dealers, and others further down the food chain that owe their livelihoods to a smoothly-running Street.

We find ourselves at an interesting juncture, with the business of financial decision making seemingly overbuilt for the prospects at hand.  Individuals face declining incomes and the possibility of trying to find new employment, in some cases with résumés that feature experience trading things that people don’t want any more.  The ripple effects throughout the economy are no longer wondered about, but are front-page news, thanks to the speeches of Governor Paterson of New York.  He was handed the job just as the estimated twenty percent of state revenues that comes from the financial service industry looks to decline markedly.

The macroeconomic events are likely to be widespread, and there will be plenty of personal stories of woe, including some of former Masters of the Universe, rendered in “told you so” fashion by the press.  For when Wall Street runs in one direction for too long, there are lots of casualties when the race changes course, for those in the business and throughout the economy.

But the business always seems to bounce back, to find the next opportunity on the other side of the retrenchment.  It’s probably more true now than ever, with the incentive fee structure being what it is; there will be frenzied activity in every direction, and some will find the keys to the kingdom.  Soon thereafter, there will be plenty of followers and we’ll be off again.

That is not to minimize the real pain that will be felt in the meantime.  Of course, I’m not referring to having to get by without colored copies,Bloomberg | Today, it was reported that Citigroup is limiting the use of color photocopies for anything other than client presentations in order to save money. but having to fire or be fired.  The tragedy is that the boom-bust mentality — which causes the expense dial to be moved clockwise too far until it’s moved counterclockwise too far — seems to never go away.

Is it possible to build an organization in this business that can stand apart from such conformity and rethink the way it does its work going forward?  Wall Street, wherever it is and whatever it does, will not soon cease being the nexus of economic machination, but the winning firms of the future will need to respond to the real needs of clients in a sustainable fashion.

Playing “follow the leader” of the latest league table is no way to run the world.