Wall Street’s rap
The world of finance needs an image makeover. It is portrayed in a bad light in movies and TV, but a finance professor of 15 years says Wall Street needs to be appreciated.
The world of finance needs an image makeover. Every movie or TV show about finance seems to portrays crooks engaged in insider trading or Ponzi schemes or shows finance during its most challenging times. One of the more recent shows perpetuates the notion that the only way to make money in finance is through illegal insider trading.
As a finance professor for fifteen years, I know with a high degree of certainty that the vast majority of the professionals on Wall Street are not crooks. They are very smart and hardworking people pursuing meaningful and rewarding careers. The antifinance sentiment is not justified. Finance is vital to the health of the economy and needs to be appreciated, not villainized.
I was born in the Soviet Union, and I know what it is like to live in a country without a functioning financial system. Finance is not just about money — it is about quality of life. It provides a freedom to leverage your human capital and shift consumption in time.
Imagine an economy where you do not have the ability to borrow or pursue the education you desire unless your parents are able to afford it, or where cannot buy a house or a car until you can pay in cash. In that imaginary economy, while trying to save, inflation is eroding savings. Your business is unable to buy inventory or hire workers. You cannot protect your family through life or disability insurance, nor do you have a checking or savings account, so all of your money is at home and everything is paid for in cash.
I have experienced such an economy. This is what needs to be feared.
Finance is not evil. It is a science like any other. The problem is that some of finance is very complex, sometimes requiring a Ph.D. in mathematics to price financial instruments or understand prospectuses of financial products like mortgage-backed securities. Even hedge funds guided by Nobel Prize-winning economists can fail, proof that none of the models used in finance can account for all the variables.
Finance is an evolving science shocked by disruptive innovations from time to time. It is prone to asset bubbles, and there are no easy fixes to prevent the next financial crisis.
However, there is no doubt that finance evolves for the better with time. The excesses of the 1980s are gone, the misvaluations of the dot.com bubble are in the past, the securitization of mortgage backed securities and the misalignment of incentives accompanying it are better understood, and the profession is much more diverse, transparent and ethical.
In fact, ethics has become an important part of the curriculum at most business schools and in professional exams like the Chartered Financial Analyst exam. History has taught us: The financial crisis of 2008 was not prevented, but it was not as severe as the Great Depression because of the lessons learned.
There is much more to finance than insider trading, Ponzi schemes and subprime mortgages. There are merger waves, hot and cold IPOs, corporate inversions, capital allocation, repurchase revolution, cash herding, cryptocurrency mining, index investing and so on.
The stories of good financiers, like George Bailey in “It’s a Wonderful Life,” can make for exciting film, as much as the chase of finance’s bad apples. Questions that arise in the world of finance can be as intriguing and captivating as those dealt with by doctors, lawyers, policemen, and fireman that we are accustomed to seeing on the screen. And finance is not just for the elites — it is all around us, and part of everyone’s life. It is in your wallet, it helps you buy a house, it guides your retirement strategy.
One can benefit by learning more about finance, given its importance in everyday life. Finance would benefit from a show like “Grey’s Anatomy” and other popular shows that illuminate the medical profession. A show that would explain financial concepts in an engaging way and educate viewers about the positive side of finance would balance out the negative.
After all, studies show that financial illiteracy contributes to financial crises, like the one of 2008, and learning through stories is as old as humanity. Katsiaryna Bardos is the author of the TV drama pilot “Financial Affairs” and an associate professor of finance at Fairfield University.