Bailout

Has the SEC changed the culture of Wall Street?

By Felix Salmon

Michael Lewis addresses the fixed-income group at Goldman Sachs:

The masses will be curious to know, for instance, how you became blinded to the very simple difference between right and wrong. The more moralistic among them will ask the question mainly to fuel their own outrage; the more tactical will ask the question because they sense that the financial system doesn?t function unless you have the incentive to think in these terms — and you clearly do not.

He concludes:

There was a time when a Wall Street bond trader could work with a short seller to create a bond to fail, trick and bribe the ratings companies into blessing the bond, then sell the bond to a slow-witted German without having to worry if anyone would ever know, or care, what he?d just done.

That just changed.

This, it would seem, is the power of the SEC: by filing its complaint in public rather than seeking to settle in private, it might have significantly changed the culture of Wall Street in a way that Barney Frank and Chris Dodd and Paul Volcker and of course Barack Obama have been trying and failing to do ever since they took office.

Certainly the SEC seems to have changed the attitude of Michael Lewis towards these instruments: there was no hint of “tricks and bribes” in his book on this subject. I wonder whether he’ll add some kind of afterword for the paperback edition.

Full post as published by Macroprudential on April 22, 2010 (boomark / email).