In 2004, urban theorist
not only predicted the burst in the real estate bubble, but talked
about how it could unwind. In her book
Dark Age Ahead
, the late Jacobs (best known for her treatise
The Death and Life of Great American Cities
) took a quite hopeful view of how to avoid a dark age, discussing
not only the troubling signs of a decline in civilization, but how
to prevent these factors.
One culprit of collapse, Jacobs posits, is when industries and
trade groups refuse to police themselves. Throughout history,
civilizations have thrived when professional experts regulate
themselves through self-imposed codes of conduct. The idea is that
while government can regulate physicians, attorneys and
accountants, any so-called "profession" elevates itself when its
members agree on a code of conduct that prevents fraud and
mismanagement and encourages long-term confidence in its standards.
Hence our collective frustration at Enron's accountants and the
Catholic Church's clergy.
At one time, the NYSE was this sort of member body, and its
"brand" was synonymous with stability. Even as late as the 1970s, a
seat on the exchange commanded enormous respect. That is not the
case today. The general public is tired of Wall Street; they no
longer trust them. That being said, there is still a reservoir of
goodwill for the NYSE as an institution. Any American would still
be totally honored to "ring the bell" and would certainly count it
as one of their great life experiences.
But if we are judging by its CEO comments, it is seems just one
other blame-shifting company. The NYSE Euronext's (
) Larry Leibowitz was blaming electronic trading, telling
"When a large order or series of orders comes into
electronic markets, they don't really have any way to recognize
either that they're a mistake or to slow them to down to
attract the proper liquidity on the other side."
Respectfully, we are shocked to hear this response, and we now
see how NYSE's brand is continually being tarnished. The job of the
NYSE is precisely to look at trades. Its job is not to run
investigations; the job of the NYSE is to set up a system that
prevents investigations in the first place in order to protect the
investor. NYSE gets to decide how and which and at what volume
"orders" come into its system, what traders get to be recognized
and what companies get to list. It's in full control.
The NYSE still commands enormous prestige; a mere listing gives
gravitas to a company. That's why companies like P&G list their
stocks there. But the reason the NYSE brand counts is not because
it has been around forever and the building is a National Historic
Landmark, and folks like to come and ring the bell. NYSE matters
because most people believe it stands for something. The brand
stands for fair stock trading. And part of "fair" is not just
fixing messes after they happen, but preventing accidents before
I cannot pretend to have the answers as to how to fix this
problem, that is the job of NYSE, should it wish to preserve its
brand. NYSE has been all over how the SEC will regulate the
industry. There are valid concerns there. But the reality is that
the main reason why the government is messing about with the
exchange is that its self-policing has failed.
NYSE cannot immediately control what happens outside of its
exchanges, but it can control what ultimately happens to the stock
of the companies that have paid so dearly to be listed with NYSE.
The whole idea of the NYSE was to make rules for the trading of the
companies that decide to list. But as it is practiced today, the
NYSE seems to the public to be some sort of electronic Harrah's
where men of a certain sort get to gamble with their livelihoods. I
can only imagine the scene in Cincinnati when all these trading
mistakes were not only dragging down the price of P&G's (
) stock, but freezing the liquidity of the entire world
The reality is that the NYSE existed for over a century before
the advent of the Securities and Exchange Commission. The founders
of the NYSE gathered under a buttonwood tree to police themselves,
and bring order so that business could thrive. Perhaps the current
leadership of the NYSE can find another buttonwood a few blocks
away, and figure a way to preserve the nation's confidence not only
in its storied brand, but in capitalism itself.
Morning Report: Futures Plunge With Global