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There is a misconception that Wall Street is composed of rich people gambling with other rich people's money. This couldn't be further from the truth. The secret that Wall Street doesn't want anyone to know is that hedge funds comprise less than 5% of assets in the stock market. The real big players in the market are individual households and the pension funds, mutual funds, university endowments, charities and foundations that are entrusted with your savings, donations, retirement funds and 401(k)s--trillions and trillions of dollars that are invested with Wall Street banks. In effect, you are the big player in the market, and when a bank overcharges a teacher's retirement fund or a charity on a complex product; misprices the Facebook IPO, causing billions of dollars of wealth destruction; helps the governments of Greece and Italy cover up their debt; or rigs interest rates, affecting trillions of dollars of loans, it ultimately comes out of your pocket.
But how does Wall Street make so much money anyway? Two words: asymmetrical information. Because Wall Street facilitates business for the smartest hedge funds, mutual funds, pension funds, sovereign wealth funds and corporations in the world, it knows who is on every side of a trade. It can effectively see everyone's cards. Therefore, it can bet smarter with its own money. And given the lax industry regulation, there is maximum temptation to try to exploit unsophisticated investors and conflicts of interest.
Despite the attempts of my former employer, Goldman Sachs, to undermine my credibility as I speak out on these issues, I stand by my opinions, facts and actions. I am a capitalist and believe in the idea of businesses' making as much money as possible and growing. But I want it to be done fairly and transparently--and on an even playing field. I just don't believe that capitalism is embedded with some kind of assumption that ethical boundaries should be pushed as far as possible and that deceiving your customers is necessary to generate maximum returns.
After the Crash in 1929, the Senate conducted the Pecora hearings to investigate its causes. This inquiry led to real reforms that held banks accountable and eliminated abusive practices. This was followed by decades of calm in the financial system. As you go to the ballot box on Nov. 6, it's worth asking, Why don't today's Senate, House and presidential candidates have the guts to do the same thing?
Smith is the author of the new book Why I Left Goldman Sachs: A Wall Street Story