Amidst the extraordinary, mournful crisis in the financial markets these last few weeks, a few truths have become painfully evident:
From Growthink’s entrepreneurial economy perspective, a few more truths are less readily evident, but fundamentally more profound. Quite simply, Wall Street finance has lost connection these past few years with its core purpose and intent – namely to provide intelligent advice and capital to operating companies. While significant efficiencies (and correspondingly wealth-building) can be achieved from trading platform and instrument innovation, the value of this “innovation” is vastly over-rewarded in the marketplace.
The very fact that the most highly compensated roles in our economy over the past few years have been hedge fund managers, derivatives traders, and sub-prime mortgage hypsters points to the heart of the problem. While these folks serve a role, for sure, the combination of their almost comically (if it were not so anger-inducing) inflated compensation structures, combined with the systemic risk to which they exposed both their fellow workers and the economy as whole, is a failure of priorities for which we are all paying the price.
Where do we go from here? My hope is that finance and general marketplace incentive structures revert to more wholesome, “vanilla” dynamics. Traders are rewarded less, and company-builders rewarded more. Capital is more difficult to come by for hedge funds, and easier to come by for entrepreneurs. Harder for derivatives traders, and easier for scientists and engineers. Harder for debt, and easier for equity.
The fundamental good that can and should come out of this market cataclysm is a cleansing and a re-ordering of priorities. Provide a milieu and an incentive structure for operating companies to access capital and grow. And contrastingly – devalue activities that simply move capital as opposed to creating it.