Old vs. Young: The Battle to Reregulate Wall Street

Wall Street's elders are channeling populist rage into proposals to regulate Wall Street -- but the next generation is resisting. The New York Times reports that a gaggle of people who have already made their pile from Wall Street -- and whose average age is "north of 70" -- want to return Wall Street to where it was when the Glass-Steagall Act was the law of the land.Specifically, hedge fund magnate George Soros; Treasury Secretary under George H.W. Bush and former Dillon Read Chairman Nicholas F. Brady; former Citigroup CEO John S. Reed; SEC head under George W. Bush and Donaldson Lufkin and Jenrette co-founder William H. Donaldson; and Vanguard founder and former CEO John C. Bogle want to prevent commercial banks -- whose deposits are insured by the U.S. government -- from using those insured deposits to gamble in investment banking.

Why are the investment world's septuagenarians so eager to regulate Wall Street while their successors want to preserve its heads-I-win; tails-you-lose culture? Is it simply that the younger generation still wants to make more money while their elders are looking towards their legacies now that their lives are almost over? It could be as simple as that. But the difference in opinions also represents the difference between what each generation has accomplished.

The septuagenarians came of age on the tail end of the generation that won World War II and positioned America as the world's leader. (Donaldson actually joined the Marines during the Korean War, though he never saw combat.) This gave them a sense of responsibility for others that their children, the Baby Boomers who now rule Wall Street, never had. The Baby Boomers are all about getting as much as they can for themselves.

You Bet With Your Own Money -- Not With the Taxpayers'

Is it a mistake to paint all Baby Boomers as selfish yuppies and their parents as responsible adults seeking to preserve American finance for future generations? Perhaps it is. But those septuagenarians -- with the obvious exception of 71-year-old John Reed of Citigroup -- were not beneficiaries of the repeal of Glass-Steagall in 1999. They made their money the old-fashioned way -- by putting their own capital at risk, rather than that of the U.S. taxpayers.

Wall Street's elders have different values than the Baby Boomers. The elders stopped making the big bucks decades ago and are now more concerned with what obituary writers will say about them.

And I think the populist rage that the elders' proposals reflect is based upon a sound idea -- that Wall Street should be a free market where risk-takers win or lose based on the bets of their own capital. In my mind, there is absolutely no way that the American taxpayer should come to the rescue of Wall Streeters who make bad bets with other people's money -- or their own.

Unfortunately, with the exception of George Soros, who has donated around $1 million to candidates over the last 30 years, most of these elders are not pumping money into Washington. (Of course, that number fails to count the tens of millions Soros poured into his unsuccessful drive to keep George W. Bush from winning reelection in 2004 -- but most of that cash went to PACs.) The old guard is massively outgunned in terms of political contributions by Wall Street's Baby Boomers: As I wrote last October, they pour about $500 million a year into the coffers of Washington lobbying firms and politicians.

So the elders' pleas for wisdom may fall on deaf ears when it comes to setting actual regulatory policy. And America will end up with the best Wall Street regulation that money can buy -- which is pretty much the way it is right now.
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