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Hating Wall Street is an American tradition that dates back even to the days when Thomas Jefferson cursed that money lover Alexander Hamilton. And for centuries, the complaints about it have largely stayed the same: It does nothing! It creates chaos! It’s a parasite that sucks hardworking Americans dry! (Or something to that effect.) But these are distortions of a fundamentally beneficial business. The country’s largest investment banks, commercial banks and a few big insurance companies (what we generally refer to as Wall Street) play the crucial role of intermediation — matching borrowers with lenders. Most of the time, the industry does this extremely well (though in the case of matching homeowners’ debt to the global financial system, too enthusiastically). Perhaps the best way to really appreciate what Wall Street does is to imagine life without it.

THE POOR WOULD STAY POOR

In the U.S., we use credit cards, mortgages, credit scores, securitized loans and other Wall Street innovations to do the miraculous: to persuade some institution with a lot of money to hand it over to someone who doesn’t have that much. This happens even though we have laws that allow borrowers to declare they can’t pay the loans back.

Sure, we have too much household debt, but that’s a better problem than what most nations face. Most people in the world don’t have access to a modern financial system, and there is almost no way, other than through greedy loan sharks, for the surplus cash of the very rich to get in the hands of the poor.

THERE WOULD BE NO MIDDLE CLASS

Or at least it would look a whole lot different than it does today. One of the most striking facts of life in countries without a modern financial system is the near total absence of upward mobility. The financial-services industry, however, performs a kind of fiscal time travel by pooling the nation’s collective savings and transforming it into all sorts of loans. This allows people to spend money now that they won’t earn until later. When spent wisely, this money borrowed from the future actually makes the future quite a bit brighter.

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There is a lot of appropriate anger about excessive student debt these days, but student loans have largely changed America for the better. Countless working-class kids were able to have educations they couldn’t otherwise afford. Many were able to start businesses because of easier access to credit. They were also able to sell their wares to other people who had ascended to the middle class.

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LOTS OF AWESOME THINGS WOULD NEVER HAPPEN



Just about anything that makes you happy — whether it’s a lifesaving drug or just the artisanal goat cheese at the shop around the corner — was at one point a risky project. As you read this, your money is being pooled with that of millions of other people and institutions to finance risky projects (farmers, shopkeepers, tech developers) that would freak you out if you were asked to lend to them. Your 401(k) takes your spare cash and links it to thousands of companies, many of which are making bets that you might find ridiculous. But by pooling so much capital and spreading out the risk, Wall Street creates a safe space for failure, which is an essential part of capitalism.