The Internet: Enemy and Enabler of the U.S. Banking System

Online technology facilitates the modern financial services industry, allowing firms to trade in high volumes and generate immense profits, but it also facilitates the protest of that industry, allowing dissenters to communicate their frustrations in mass

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Watching Wall Street's reaction to the Occupy Wall Street movement, I'm reminded of the remark David Packard, the co-founder of Hewlett-Packard, once made about a prominent politician: "How can anyone that smart be that dumb?"

Why are the smart billionaires on Wall Street acting like they don't have a clue? Why would they fail to understand the simplest of 21st century axioms? It's all about the Internet.

By word and deed, Wall Street is playing into the protesters' hands. Packard would have marveled at the recent Bank of America announcement that it planned to waive debit card fees for customers who maintained at least $20,000 in their accounts. And everyone else? Five dollars per month for debit card transactions.

This is even more remarkable when you consider that debit card transactions involve no credit risk and, depending, on whom you believe, actually cost the bank less than two cents per transaction. By one estimate, the bank would have netted an extra billion a month in profits.

Why would BofA pick a "let them eat cake" strategy? The timing certainly couldn't have been better for the Occupy Wall Street folks. They seized on the debit card fees, and feeling the pressure, BofA nixed its plan earlier this week. Chase, Wells Fargo and others also canceled plans to charge debit-card fees. The protesters have vowed to close accounts with fee-charging institutions, designating November 5 as "Bank Transfer Day."

Occupy Wall Street may have started small, but it spread like a brush fire. The first protests sprang up in New York, then quickly spread to San Francisco, Los Angeles, Chicago, Boston, and to Europe, Asia, and the Americas. According to, "meetups" are currently taking place in more than 1,500 cities.

The similarities between Zuccotti Park and Tahrir Square are striking: people living in tents for weeks; peaceful protests occasionally turning violent; demonstrations spreading to other cities; an upper class unable to empathize with the frustrations of the protesters; anger at a privileged group that receives favorable treatment from the government; the dismissal of the disaffected as a radical fringe group; and a protest empowered by the Internet.

What surprises me most is Wall Street's failure to appreciate the power of the Internet. If you make a great proportion of your profits by leveraging the Internet in the financial world, why wouldn't you be concerned about others using its leverage to spread their frustrations?

It's the Internet that the financial world has to thank for the explosion of financial services industry and its ability to generate immense profits. Without the Internet it would be impossible to trade $4 trillion in currencies every day; high-frequency trading, which now accounts for almost two-thirds of stock trading volume, could not exist without Internet-facilitated information flows.

So what lessons should Wall Street have learned about Internet-driven protests from Tahrir Square and its own experiences with the Internet?

First, in a highly connected environment, even a small group can spread an economic or thought contagion. Wall Street firms, as well as most citizens, were victims of the financial contagions that spread throughout the world economy during the 2008 Financial Crisis. As Timothy Geithner recently observed, "This interconnectedness is not a trivial issue; even a relatively small country could threaten the world financial system."

What's true for a small country could be true for a small group.

The second lesson is that the little people -- let's call them the $5-a-month people -- now have a powerful collective voice. Regis McKenna, the Silicon Valley public relations guru, once told me, "Never pick a fight with someone who buys ink by the barrel."

The little guys are now leveraging barrels of virtual ink, while directing the application of the real ink as well. According to a Pew report, recent anti-Wall Street protests accounted for 7 percent of news coverage -- almost twice the level of coverage devoted to the war in Afghanistan.

The third lesson is that the simplest missteps can become amplified and grow into major embarrassments. Certainly, banks deserve to be compensated fairly for providing debit card services. But they presented their case in the worst possible way.

Occupy Wall Street is a diffuse, unfocused effort that could peter out. But Wall Street shouldn't bet on that. Those who preside over the world of high finance would do well to heed the remarks of a former hedge fund manager: "Anybody who dismisses them publicly is putting a bull's-eye on their back."

I would go a step further and suggest that financial institutions carefully consider their actions before spoiling for a fight with a group that has barrels of virtual ink at its disposal. That's the lesson they should have learned from Tahrir Square.

Image: David_Shankbone/Flickr