The problems on Wall Street didn’t happen overnight, they’ve been festering for decades and it won’t end for a while. Once upon a time people invested in corporations and took their returns as dividends, now people expect to score big overnight as start-ups turn into the next Google. Somewhere along the line institutional investors told corporate management that stock price was all that mattered and if the underlying company was just a shell, just let us know when it’s time to bail out. We saw it with Enron, we saw it with Tyco and WorldCom and many others, yet even that wasn’t the beginning. The beginning isn’t any specific date, it was after the first few companies turned into overnight successes and the boys and girls on Wall Street figured out that there were a hundred different ways to artificially boost a stock’s price so as long as you knew when to get out, you could make a bundle overnight. This of course was unethical and illegal, but that just meant you needed to cut in the guys involved with watching over your shoulder. If you think this isn’t true, read the story of Enron. Not only were the guys at the top in on it, they got Arthur Anderson and the big brokerage houses to play along too. I’m sure that when the investigations into Goldman and the others are complete we’ll see similar cooperation by a number of people that should have raised flags long before the crisis errupted.
The crisis we face today isn’t all that different than what happened in the late 1920s. The markets were going wild, people thought they’d hit the jackpot, and the guys that thought they knew how to game the market were doing everything in their power to pile more wealth on top of stacks and stacks of paper profits. Nobody expected the bottom to fall out so fast and everyone thought they could get out in time if things got dicey. The stock market then and now is more like a rigged casino than it is rational investment. Does that mean you should panic? No, at least not yet. Panicking only makes the problem worse and the whole idea behind this bailout is to keep the bottom from falling out.
The stock market is rigged because the big institutional investors and the uber-wealthy have a great deal more information on which to base their decisions and they get the first phone calls when things start turning sour, but they can’t allow the entire system to collapse. If Bill Gates or Warren Buffet still held all their wealth (they gave a bunch of it away), they couldn’t cash out to sit on the sidelines and watch everyone else freak out, they’d go down with everyone else. I doubt they’d do that even if they could, but others might. The rats at Enron were more than happy to watch the entire State of California collapse as they raked in unconscionable profits on dubious energy sales as the result of their blatant gaming of the energy markets.
The stock market is tilted unfairly against the small investor. If a company like Goldman Sachs fails, the big boys know in advance and head for the hills; while you need to call your broker and make your way through the phone maze that likely disconnects you to give them time to rearrange their positions and allow you to absorb the downside.
As I said in another article, once this mess settles out, I believe the American consumer as well as the American investor needs to think about the sort of country they want and the values they wish to encourage. By investing through big brokerages, by buying from WalMart instead of local stores, by letting chain stores wipe out your town’s local economy, we have voted for unconscionable salaries at the heads of the corporations. If we don’t like the idea of China eating our lunch or all our manufacturing jobs flowing overseas, buy locally produced products. If we start to reward companies that aren’t greedy, the guys at the top will fall. I have nothing against the products some of these mega-companies make, but I do have a problem with anyone that gets paid $50 million even if they are doing a terrific job. I have a problem with them getting paid over a million. We need to start looking at the corporation as well as the product. If they use slave labor or are harming our economy or pay their executives like kings or allow them to fly in corporate jets or hold lavish parties at the expense of consumers, just don’t buy their products. These companies are in business to make money and if we stop buying they will change their ways or perish. If everyone takes a stand and starts becoming wise consumers, this sort of financial crisis should be less likely. It started because of greed and corruption and we expected our nation’s leaders to be watching out for us, but it is us, each and every one of us, that must be vigilant and actually care. When you hear that a company is in financial trouble yet the CEO is still getting paid $50 million, perhaps the company deserves to perish. In my book, $10 million pay packages are too much even for a highly successful company. I believe that if I have to work until I am 65 or 70 or longer, those people should too. Anyone getting paid $10 mil could cash out and retire after just a single year. I know it would be a struggle to live on just $10 million, yet there are millions of people in this country worrying about losing their homes and millions more already have yet we continue to allow these companies to hand out cash to the guys at the top like candy. In part, this financial crisis started because we weren’t paying attention and we placed way, way, way too much faith in those in charge.
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