Wall Street Professionals Admit: Yes, Lots of Us Are Corrupt

Wall Street corruption
Is Wall Street corrupt? Responses vary depending on whom you ask. But ask the folks who work in the financial services industry and you'll get a surprisingly clear answer: "Yes."

A recent survey of 500 financial services professionals, conducted by market researcher Populus at the behest of law firm Labaton Sucharow, turned up some surprisingly candid results from the folks surveyed. For example:
  • 39% of financial industry insiders surveyed "reported that their competitors are likely to have engaged in illegal or unethical activity in order to be successful."
  • And this was more than just suspicion. "26% of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace."
  • Nearly one in four "believed that financial services professionals may need to engage in unethical or illegal conduct in order to be successful.
  • Nearly one in three said they themselves felt "pressured by bonus or compensation plans to violate the law or engage in unethical conduct.
But pressure need not be succumbed to. Surely these financial industry professionals put their ethics, and the interests of their clients, ahead of personal gain, right?

Well ... not necessarily.
  • 16% of respondents admitted that they -- personally -- would break the law by trading on insider information "if they could get away with it."
  • Fewer than half could say unequivocally that they would not engage in insider trading in a situation where they knew for sure that they would get away with it.
  • What's more, chances are they can get away with it. Because "only one in four financial services professionals believe [financial watchdogs such as the SEC or other government regulators] are effective."
Lies, Damn Liars, and Statistics

Needless to say, these numbers are a bit discouraging. After all, these are the people to whom we entrust our money, our nest eggs, our life savings. The people who are supposed to use their expertise to help us establish a secure retirement. The folks who, in theory at least, have a fiduciary duty to obey the law and put the interests of their clients first.

Yet out of the ranks of these supposed paragons of virtue -- bankers, fund managers, asset managers, and analysts -- one in six lacks sufficient moral backbone to resist the temptation to break the law unless someone's constantly looking over their shoulders, making sure they play by the rules. (And that's the best-case scenario. Theoretically, as many as half of our financial "professionals" are potentially corruptible.)

Now add to this fact the apparently widespread conviction that "everybody else is doing it" -- and getting away with it -- and the further belief that breaking the law is almost a job requirement.

All of a sudden, the epidemic of mortgage fraud, the Bank of America (BAC)-Merrill Lynch bonus debacle, the Madoff scandal -- all of it starts to make sense. Suddenly, you start to understand why Goldman Sachs (GS) CFO David Viniar, when asked earlier this week whether decreased profitability at his firm was a cue to cut costs after he had just noted that Goldman was paying out 44% of all corporate revenue as compensation for his employees, responded simply that "we aren't going to cut our way to prosperity."

As I heard it, he might as well have responded: "Hey, I've got mine, Jack." Because on Wall Street today, that's apparently all that matters.

Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services have recommended buying shares of Goldman Sachs.

Pop Quiz: Who Is Living America's Middle-Class Dream?
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Wall Street Professionals Admit: Yes, Lots of Us Are Corrupt

A. $30,000
B. $50,000
C. $65,000
D. $80,000

Answer: B. According to the Census Bureau, the middle 60% of households make between $20,263 and $101,582, and the middle quintile -- the "middlest" of the middle class -- makes $38,521-$62,434 per year. The median household brings home $50,020 per year.

A. $40,000
B. $50,000
C. $60,000
D. $70,000

Answer: D. According to a recent Pew poll, the median middle class response was that it takes $70,000 per year to fund a middle class family of four.

A. High School diploma
B. Associate degree
C. College degree
D. Graduate degree

Answer: B. Educational attainment is one of the fault lines between money-based and lifestyle-based definitions of the middle class. Most theorists claim that a college degree -- or even a graduate degree -- are necessary for membership in the group. The Census Bureau, on the other hand, notes that the median household headed by someone with an associate's degree makes $55,928 per year -- almost $6,000 more than the median household. As for households headed by college graduates, their median income is $83,985. In other words, according to the Census Bureau, it doesn't take a four-year college diploma to live the middle-class dream.

A. 4%
B. 15%
C. 21%
D. 34%

Answer: A -- or maybe B. The middle 20% of the country -- the core middle class -- holds 4% of the nation's wealth, which is defined as assets, minus debts. The middle 60%, which is a more expansive definition of the middle class, has just over 15%. The rest, 85%, is almost entirely held by the richest 20% of the country.

A. 3%
B. 7%
C. 10%
D. 15%

Answer: A. According to the nonpartisan Tax Policy Center, the effective income tax rate -- basically, income tax after deductions and tax credits -- is 3.3% for the middle 20% of taxpayers. For the middle 60%, it ranges from -0.4% to 6.2%. In other words, a large part of the middle class fits into the 47% of citizens who don't pay any federal income tax.

A. 20%
B. 49%
C. 63%
D. 72%

Answer: B. For decades, the number of people who define themselves as middle class has remained fairly consistent, fluctuating between 45% and 49%. Surprisingly, this is also fairly consistent across races: In a recent study, 51% of white respondents described themselves as middle class, compared with 48% of blacks and 47% of Hispanics.

A. 18%
B. 37%
C. 41%
D. 58%

Answer: D. The middle 60% of Americans -- the full middle class -- receive 58% of all federal entitlements. The top 20% receive 10% of entitlements, and the bottom 20% -- the poorest people in the country -- receive 32%


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