September 24, 2013

5 Years On, Americans See Wall St. as ‘Foreign ... a Culture Apart’

Researchers Karlyn Bowman and Andrew Rugg at the American Enterprise Institute (AEI*) have published an important paper that delves into the nature of Americans’ distrust of Wall Street.

"Five Years After the Crash: What Americans Think about Wall Street, Banks, Business and Free Enterprise,” also illustrates that Americans clearly distinguish "Wall Street" from "business" and "free enterprise." 

While Bowman and Rugg note that negative American views of Wall Street are not new, what is new is that these negative views were magnified by the financial crisis and have become "deep-seated."  The findings of a survey that Harris Interactive has conducted for the past 23 years is particularly compelling. In 2007, the authors report, "30% had very little or no confidence in the financial industry. By January 2009, that number had doubled to 60%." In 2012, 51% still had "little or no" confidence, and only 9% had a "great deal" or "quite a lot” of confidence in the industry

Distrust of Wall Street

The authors are troubled by several other findings from the Harris 2012 poll. Only 28% agreed that "people on Wall Street are as honest and moral as other people" while 70% agreed that "most people on Wall Street would be willing to break the law if they believed they could make a lot of money and get away with it."  

The Harris findings are corroborated in other polls. The American Values survey conducted by The Atlantic and the Aspen Institute found that only 17% of Americans believed that "executives at large Wall Street banks share the same fundamental set of values as other Americans.” An October 2011 CNN poll found only 3% trusted Wall Street bankers and brokers "a great deal" to do what is best for the economy; 54% trusted them "not at all." 

Bowman and Rugg conclude, "Americans see Wall Street as a culture apart, one that operates by a foreign code of conduct." 

In contrast, Americans’ views of "business" are mixed. While the authors note "small business" typically gets high ratings, views of "big business" tend to be weighted down by the public's "innate skepticism of big, powerful institutions." Yet these views are also modulated by the ups and downs of the economy. As the authors note, in 2013, "Feelings towards corporations are “warming" as the economy has improved.”

Another factor that contributes to a "mixed" view of big business, a point not mentioned in this paper, is the industry itself. In a Harris Interactive February 2013 survey that measured the reputations of the "60 most visible companies," the consumer technology companies, Amazon, Apple and Google, actually rated quite high, at “excellent,” and occupy three of the top four positions, while financial institutions rated quite low, Wells Fargo, JPMorgan, Citigroup, Bank of America and Goldman Sachs occupy, respectively, positions 52, 53, 55, 56, and 59, all rated “poor,” “very poor,” or “critical.”) 

Support for Regulation?

Views of regulation do not take hold in a vacuum. A number of factors can matter. For example, the lack of public confidence in Congress is well known. What’s less often mentioned is the lack of public confidence in the federal government. The authors note, “Behind recent opinions on the regulation of business lurks a pervasive mistrust of the federal government.”    

Views of free enterprise are also relevant, as the authors note, “Most (Americans) see business as an important engine of American success.” A 2012 Pew Research survey found that 71% agree, mostly or completely, that “the success of American business” mostly explains this country’s success.  In 2012, Gallup found that 89% viewed “free enterprise” positively.  Also, views of the role of Wall Street in capital formulation can come into play in considering regulation. From the Harris 2012 survey noted above, 62% agreed that Wall Street is essential because it provides the capital companies need.

Bowman and Rugg refer to the public sentiment on business regulation as “antiregulatory.” It would seem then, as a part of business and the free enterprise economy, this sentiment might rub off on sentiments of Wall Street. Nope. While the public trusts business to drive the free market, the public distrusts Wall Street, strongly. “People want more oversight of financial firms and Wall Street…. In fact 82% agreed with Harris pollsters in 2012 that “recent events have shown that Wall Street should be subject to tougher regulations.” 

Americans overwhelmingly support increasing Wall Street regulations while decreasing regulations on business. These views are not contradictory. An insight in the Bowman and Rugg paper suggests why. Anti-Wall Street views are not about, as suggested by some observers, the Wall Street bonuses, class warfare or envy. Its not even about the public’s misunderstandings about corporate profits.

The anti-Wall Street views here are about something else. The underlying public sentiment, fair or not, is that Wall Street, the authors say, “operates by a foreign code of conduct,” i. e.: with a different set of values and mores. The authors conclude, “The consensus is that many of these firms are not ethical or concerned about the well-being of the country.”

This is a hefty indictment. It suggests Americans who view themselves as pro business and free enterprise do not view Wall Street as part of American business, but  as part of something else: something foreign, unintelligible and, according to the authors, disinterested in the country’s “well-being.”

The Securities Industry Financial Markets Association (SIFMA) plans to address this indictment at its annual meeting in November, according to a news report. SIFMA will unveil recommendations it says are aimed to improve trust and confidence in the financial industry.     

Five Years After the Crash is an important paper on a difficult topic that challenges orthodoxy on both the right and left. It offers a more complex picture of public opinion that neither fits conventional wisdom nor can fit on a bumper sticker. It suggests to conservatives why smart regulation of Wall Street is smart; it suggests to liberals there are limits to effective regulation. Let the discussion continue. 

* AEI is a Washington-based conservative think tank committed to "expanding liberty, increasing individual opportunity and strengthening free enterprise"  Its scholars include a "who's who" of conservatives such as: Glenn Hubbard, Lawrence B. Lindsay, Alex J. Pollock, and Peter J. Wallison. 

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