Wall Street goes free

Adam Smith used the “invisible hand” to describe the self-regulating behavior of the marketplace.  In essence, it promised that an individuals' efforts to maximize their own gains in a free market benefits society, even if the ambitious have no benevolent intentions.

So when the butcher uses up the entire animal to maximize his profits, even the poor might benefit from the cheaper cuts.  That may have been true in Smith’s eighteenth century era, when agriculture was the primary industry and daily life included fundamental economic activities involving tangible items.  But it’s a seriously flawed theory today.

We live in a time when the maximum value is placed on intangibles like debt obligations and equity interests.  When these man-made instruments are insured and that insurance itself is traded again without regulations, removing its value further away from the economic chain.  The profits from these transactions do no good for anyone but the brokers who make the market and the traders who act in their own interests.

In common language, these are the mega-rich folks who once created great industries with living wage jobs for the rest of us who no longer create anything of value for anyone but themselves.

But the fact that they are super-rich isn’t the problem I’m writing about.  The problem is that their economic practices create disasters for the rest of us.  And the government we elected to protect our interests doesn’t do much to effectively protect us from the aftermath of that destruction.

We’re now being bombarded with the scary news about a fiscal cliff and how neither party can accept the other party’s solution.  But what’s missing is any action directed at the high priests of this economic religion – Wall Street.  So shouldn’t we question why?

From Les Leopold on Alternet.org, “Once again our politicians and pundits are showing signs of financial Alzheimer's. They just can't remember that Wall Street's insatiable greed caused the Great Crash of 2008 -- not poor people buying homes, not the government's interference, not the auto-industry, not the debt. In a matter of months, 8 million American lost their jobs. Business and personal tax revenues plummeted, as expenditures rose to assist the unemployed. That's why deficits rose.  The Wall Street crash lies at the heart of the problem.”  And greed lies at the heart of Wall Street. 

Total  compensation on Wall Street rose 4% last year to more than $60 billion, near pre-crash levels—and the third highest level ever as though nothing had happened.  Even their bonuses are at pre-crash levels.   Not a single Wall Street executive was indicted for crashing our economy.  Tax payer money was used to bail out the banks and trillions of dollars in personal savings disappeared in the process – yours and my savings, not theirs.

Leopold goes on to write, “All this talk about raising the top tax bracket from 35 percent to 39 percent is a joke for Wall Street, and a cruel one for the rest of us. That's because much of the trillion-dollar hedge fund and private equity syndicates pay themselves with something called "carried interest." Instead of getting an income, they get this special version of capital gains so that their income is capped at 15 percent. If this loophole isn't eliminated during these fiscal negotiations, you'll know that Wall Street owns both parties.”

Regardless of how these negotiations turn out, I’m convinced that Wall Street, as a simile for moneyed-interests, owns government.  Further, I’m convinced that the reason is simple: Money is power.  And the reason that money is power was demonstrated in the recent election cycle.  Billion dollar campaigns make politicians captive to big moneyed interests.

Until we have significant and serious campaign finance reform, we will live with a dysfunctional government that cannot get out of its own way.  This fiscal cliff fiasco is just the latest example of that dysfunction.

Robert DeFilippis