Financial History Issue 122 (Summer 2017) | Page 39
BY BART WARD
Why Wall Street Matters
By William D. Cohan
Random House, 2017
192 pages
In Why Wall Street Matters, author and
former investment banker William Cohan
takes a hard look at what “Wall Street”
means. The book can be described as a
historical primer and a “counterintuitive
defense” of Wall Street.
Cohan’s primary objective is to explain
why an absence of financial markets would
severely limit the ability of the world (and,
more specifically, the United States) to
allocate capital efficiently in order to grow
the economy and protect our standard of
living.
In Cohan’s words, the book is also
“meant to serve as a starting point for
a long-overdue, non-hysterical national
debate about how to retain the best of
Wall Street while eliminating the incen-
tives that tend to foster the basest instincts
of human nature that lead Wall Street
bankers, traders and executives to misbe-
have on a regular basis.”
Cohan has written extensively on
investment banking, with books includ-
ing Money and Power, House of Cards and
The Last Tycoons, and his insights come
from years of working on “The Street” at
Lazard Frères, Merrill Lynch & Co. and as
a managing director at JP Morgan Chase.
In the introduction and second chapter
of Why Wall Street Matters, Cohan defines
“Wall Street” and explains how that defi-
nition has changed over the years. While
in the early days, it meant a physical loca-
tion — Wall Street from Broadway to the
East River in Lower Manhattan — today
it is synonymous with the global financial
system.
The first chapter is a whirlwind history
of American finance, beginning with the
early development of New York’s Finan-
cial District on Wall Street.
In chapters three through five, Cohan
gives the reader lessons on crises, central
banking and the importance of what can
be learned from the Crash of 1929 and the
Great Depression that followed. Here he
gets into the discussion of the Banking Act
of 1933 — more commonly known as the
Glass-Steagall Act — which was respon-
sible for breaking up banks into com-
mercial banks (deposit institutions) and
investment banks (capital formation insti-
tutions). The Act was repealed in 1999.
We heard much about Glass-Steagall
after the 2008 Crash, and Cohan says many
BOOK REVIEW
people inside and outside of government
wrongly attributed the crash to the Act’s
repeal. According to Cohan, “politicians
who should know better… are profoundly
wrong to think that what worked in the
1930s, when Wall Street was a collection
of undercapitalized private firms, would
work again today, when Wall Street is the
supreme force dominating global finance…
The fact that commercial banks are in the
investment banking business and invest-
ment banks are in the commercial banking
business had almost nothing to do with the
causes of the financial crisis of 2008.”
He does state, however, that “intelligent
reform” of Wall Street is a must.
Chapter six is particularly strong, as
Cohan covers the decades-long process of
Wall Street firms transitioning from pri-
vate partnerships — in which owners took
few chances and operated their firms with
discretion — to public entities, by selling
stock in their firms to outside investors.
He writes that this “new culture on Wall
Street was one that encouraged swinging
for the fences — taking risks with other
people’s money — in the hope of getting a
big annual bonus.”
Why Wall Street Matters includes serious
ideas about where the problems are and
what should be done in the future. It is a
book that people who work on Wall Street
and those who know little about finance can
equally read and understand.
Bart Ward is CEO of the Investment
Advisory firm of Ward & Company, Ltd.
Since 1993 he has written the weekly Wall
Street history and market-oriented col-
umn, “The Corner.” He has his degree in
history from UCLA.
Watch William Cohan speak on Why Wall Street Matters on
our YouTube channel at YouTube.com/FinanceMuseum
www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 37