September 17, 2008 By: Vinod Dar, Managing Director, Dar&Company
After the hysteria of the moment declines, the humbling of Wall Street will be a positive for Main Street and most ordinary people.
1. There will be less volatility in energy and commodity markets because of less trading for the investment bank's house account with cheap borrowed money. Speculative trading will become more expensive. Energy prices will be lower than they would have been otherwise. The positive economic effect from this spread across millions of working families through the country will exceed the negative effect from job and revenue losses in New York and Boston metro areas.
2. There will be less lobbying pressure from Wall Street for carbon trading markets and less lobbying for carbon control legislation in the US. The price of carbon on European exchanges will also decline as leveraged carbon trading by financial players becomes less lucrative and more difficult to finance on large scale.
3. Wall Street's corrupting role in politics and culture will be lessened.
4. Hedge funds will be less potent, allowing investors more influence and traders less influence. Equity markets had become mostly trading markets over the past 10 years rather than a balance of trading and investing markets. The small investor will have more opportunity for fair treatment and long term investing and will receive better treatment from brokers and financial advisors.
5. Real companies doing real things for real people will once again become more attractive to investors and to talented employees.
6. There will be a greater insistence on being properly compensated for risk by both individuals and companies as well as taxpayers who are compelled to bail out badly managed financial institutions.
7. Quantitative, model obsessed management will fall into disfavor and management based on insight, intuition and deep domain knowledge will be more favored by Boards and investors. CEOs will be under greater pressure to actually earn their bonuses and incentive compensation.
8. Charlotte, NC will become more important and Manhattan will become less important.
9. Interest rates will be lower than they otherwise would and there will be more capital available to credit worthy homeowners, small businesses and new ventures that do not rely on government subsidies, media hype and Wall Street hyperventilation for their financing. A result will be the quality of new ventures will be higher.
10. The Old Economy will thrive while the New Economy will have to struggle to regain status and credibility