The Occupy Wall Street protests in Manhattan have focused attention on the irresponsibility of the big financial firms, but the campaigners should advocate practical reforms if they are to succeed, writes WILLIAM COHAN

EARLIER THIS MONTH on US channel HBO, Alan Grayson, a former one-term, liberal Democratic congressman from Florida, seemed momentarily to become the spokesman for the nascent “Occupy Wall Street” movement.

“Now let me tell you what they’re talking about,” Grayson explained, in answer to the ongoing criticism that the group lacked a set of clearly defined goals in the same way that, say, the protesters in Tahrir Square knew that they wanted freedom from their tyrannical government. “They’re complaining about the fact that Wall Street wrecked the economy three years ago and nobody’s been held responsible for that. Not a single person has been indicted or convicted for destroying 20 per cent of our national net worth accumulated over the course of two centuries. They’re upset about the fact that Wall Street has iron control over the economic policies of this country, and that one party is wholly owned by a subsidiary of Wall Street and the other party caters to them as well. That’s the real truth of the matter . . .”

Grayson is absolutely right about the ongoing lack of accountability for Wall Street’s role in the financial crisis that began in 2007 – and from which much of the world is still suffering – and that Wall Street continues to have undue influence over the American political process. No doubt there is a high correlation between these two facts.

While he was at it, Grayson could have also mentioned a few other startling Wall Street-related outrages. How about the fact that last year’s 2,200-page Dodd-Frank Wall Street reform law, which very few people comprehend, will do very little to alter Wall Street behaviour? Or that Wall Street’s lobbyists and bankers are working overtime to help influence the way the new Dodd-Frank mandated regulations are written – and will govern what Wall Street can get away with in the future – because they recognise that these new rules are the last chance they have to determine how immensely profitable products, such as derivatives, are traded in the future.

Or that since 1970, when one Wall Street firm after another abandoned their partnership structures to become public companies – thereby substituting outside investors’ money for that of their partners – the Wall Street banks have plunged us into one financial crisis after another, largely because of a bonus-driven incentive system that encourages bankers and traders to take risks with other people’s money in the hope of generating huge revenues and a correspondingly large bonus, rather than having the prudent, capital-preservation focus that prevailed when these firms were partnerships. This still-flawed Wall Street incentive system – that Dodd-Frank does nothing to correct – led to the crash of 1987, the credit freeze that followed, the Long-Term Capital Management crisis of 1998, the Asian crisis, the Russian crisis, the Mexican crisis, the internet bubble, the emerging telecom crisis, and, of course, the mortgage-backed securities crisis that resulted in the Great Recession.

Or that in recent decades Wall Street has become little more than a casino where exotic, nearly incomprehensible securities are bought and sold, a blizzard of supremely complex risks that are a world away from the essential work Wall Street once did: providing its clients with capital and financial advice anywhere in the world it was needed. As Grayson no doubt understands – he graduated at the top of his classes from both Harvard College and Harvard Law School before making a fortune as the founder of a long-distance telephone company – these are the facts of life on Wall Street that are desperately in need of reform if we, collectively, are to have any hope of avoiding yet another near-term financial crisis and getting back to a modicum of prosperity.

Unfortunately, though, it seems that the “Occupy Wall Street” crowd seems more intent on protesting for protesting’s sake rather than in educating itself about these important issues and learning the argot of Wall Street so as to have a fighting chance of pushing for meaningful reform.

“Asking people here where this is going or what our demands are is like asking a patient to tell a doctor what his treatment should be,” 38-year-old protester Michael Badger told me when I spent the afternoon in Zuccotti Park in lower Manhattan recently. “We’re just here pointing out the symptoms of the problem.” This ambiguity has become a point of pride with the movement but it is hard to imagine that statement being made in Tahrir Square.

Even a more sophisticated rendering of what the protests represent gets reduced quickly to shrill, amorphous ramblings. "Either you join the revolt taking place on Wall Street and in the financial districts of other cities across the country or you stand on the wrong side of history," wrote Chris Hedges, a former foreign correspondent for the New York Timesand now a columnist for Truthdig, in a call-to-arms in the October 7th edition of Occupied Wall Street Journal, the movement's slick four-page broadsheet.

"Either you obstruct, in the only form left to us, which is civil disobedience, the plundering by the criminal class on Wall Street and accelerated destruction of the ecosystem that sustains the human species, or become the passive enabler of a monstrous evil. Either you taste, feel and smell the intoxication of freedom and revolt or sink into the miasma of despair and apathy. Either you are a rebel or a slave. Choose. But choose fast. The state and corporate forces are determined to crush this. They are not going to wait for you. They are terrified this will spread."

As should be obvious, Hedges' writing is heavy-handed drivel. Wall Street is badly in need of reform, yes, but not because Wall Street or the people who work there are inherently evil and fearful of the "Occupy Wall Street" movement but rather because since the world – for better or for worse – has landed on capitalism as its preferred form of economic organisation at the moment, we need Wall Street to stop the asynchronous speculating to which it has become addicted and return to its main role of helping clients achieve their goals.

On this point, Hedges is right (at least until he starts spewing again). "Speculation in the 17th century was a crime," he continued. "Speculators were hanged. Today they run the state and the financial markets. They disseminate the lies that pollute our airwaves. They know, even better than you, how pervasive the corruption and theft have become, how gamed the system is against you, how corporations have cemented into place a thin oligarchic class and an obsequious cadre of politicians, judges and journalists who live in their little gated Versailles . . ."

We need Wall Street to return to doing the important job of providing capital where and when it is needed anywhere in the world. With access to financing at a fair price, companies of all stripes can then increase their hiring, put more people to work meaningfully and increase standards of living. This, it seems to me, remains the promise of capitalism. If capitalism fails in this responsibility – as it certainly seems to have been doing for the last two decades or so – then it surely will be replaced by another form of economic organisation that will promise to get that job done. What's the goal of "Occupy Wall Street"?

"It can be articulated in one word – REBELLION," Hedges wrote in an October 9th column on Truthdig. "These protesters have not come to work within the system." That's a troubling thought for sure in most circles. "This is a goal the power elite cannot comprehend," Hedges continued.

But rather than wait for the economic chaos that will ensue from a Hedges-led rebellion, how about if we take meaningful steps to fix the flaws in the flawed system we have. To that end, here are a few suggestions:

n The bonus culture on Wall Street must be revamped. Human beings are pretty simple. They do what they are rewarded to do. On Wall Street, people are rewarded when they take big, short-term risks with other people's money. Trouble is, they are rewarded not only when the bets pay off, but also when they don't. There's probably no practical way to return to the private partnerships that required people to put their net worth on the line, but a way must be found to require bankers, traders and executives to have "skin in the game".

But how? We could start by creating a new security that represents the entire net worth of the top 100 executives at the remaining Wall Street companies. These are people who decide what business lines to be in, how to deploy capital, who to promote and how much to pay them. This new security would be at the bottom of the corporate capital structure – below corporate debt and shareholder's equity – and would be the first asset to be wiped out if the company performs poorly. This would ensure that today's Masters of the Universe are focused on the risks their businesses are taking and not destroying our economy.

n Close the casino. In the early days on Wall Street, banks prospered by helping their corporate clients achieve their goals. Among them: underwriting IPOs, raising debt and equity capital, and providing advice on mergers and acquisitions.

Now, for the most part, this is a sideshow to the far bigger and more profitable endeavour of trading, which involves taking huge proprietary principal risks, buying big blocks of stock or debt, buying and selling credit and equity derivatives and making huge bets on the direction of commodities. A generation ago, investment banking generated the majority of Goldman Sachs' revenue and profit; in 2010, it accounted for just $4.8 billion (€3.5 billion), or 12 per cent, of the bank's $39 billion (€28.4 billion) in revenue, and a mere 10 per cent of its pretax profit.

Banks should no longer be allowed to gamble for their own accounts. Instead, they should return to being the boring, pre-Enron-style utilities that provided capital to clients who needed to expand plants and equipment or hire new employees. They could also provide advice on corporate mergers or asset management.

A new version of the 1933 Glass-Steagall Act, which separated investment banking from commercial banking, should be implemented to close the casino. At the very least, cheap financing from the Fed should no longer be used to subsidise risk-taking. The business models of companies such as Lazard Ltd, Greenhill Co and Evercore Partners Inc should be emulated.

n Cut Wall Street pay at least in half. Wall Street compensation is obscene and unjustified, especially now that almost every company is publicly traded. What other publicly traded businesses pay out to their employees between 50 and 60 cents of every dollar of revenue generated? None. Do these companies exist for the benefit of the people who work there or for the benefit of their shareholders and creditors?

At the moment, they exist for the executives and employees. Drastically cutting pay would immediately reduce the largest Wall Street expense and lift profitability even as revenue and profit are sluggish. It would also help reduce the vast gulf between rich and poor in the United States, a gap that has not been this wide since the Robber Baron era of the early 20th century.

A unique moment is upon us. If Wall Street doesn't wake up from its decades-long slumber party and reform dramatically the way it does business, then people such as Alan Grayson and Chris Hedges and their followers will soon enough figure out a way to do it for them. "These bankers, I think, have no idea what they are up against," Hedges concluded.

William Cohan is a former Wall Street banker, previously as vice president at Lazard Frères and a managing director at JP Morgan Chase. He is author of The Last Tycoonsand Money and Power: How Goldman Sachs Came to Rule the World