When people trade AAPL, for example, there is a loser and a winner. The real value is not created by those trading AAPL it is created by Steve Jobs and those working at AAPL. While trading is not zero-sum, it is a mostly zero-sum activity.
You might say. AIG may beg to differ, since it went under for liquidity, rather than solvency reasons. However if you don't employ dangerous amounts of leverage, it is not an issue. There are plenty of insurance companies in business who didn't dance too close to the edge like AIG did.
I am saying: "Hey if professional traders did not exist, the markets may be a bit slower but it'll still work."
So yes, they provide liquidity but...at least in today's markets the CDO traders are not doing their job on the liquidity front! :)
Silicon Valley is ostensibly positive-sum. Some of what occurs on Wall Street is also positive-sum: for example, arbitrage and market-making provide liquidity to markets. Some financial activity, however, is not. Unfortunately for Wall Street's reputation, people tend to focus on the activities that are excessive and destructive, such as the subprime mortgage fiasco.
In general, people tend to resent most those who make money in manners that are zero-sum (or negative-sum). Examples of this would be NYC landlords, who are becoming inordinately rich based entirely on others' pain and misfortune, and health insurance executives, who enrich themselves by charging ridiculous premiums and then denying care to sick people. Most people, when they think of Wall Street, think of traders; few would draw the distinction between, say, corporate finance and what traders do. Trading isn't actually zero-sum, given that it provides liquidity, but it seems to most people like a zero-sum game, and so it's not well respected.