JCL Blog

Still No Reason for Wall Street to Change

I suppose I should not be surprised that five years into the financial crisis that nothing has really changed in the way that the financial markets work.  Either way it is disappointing that our economic system, arguably the most adaptable, has not adapted.  The explanation: no change will come until it is really needed (forced on us).

Yesterday, Andrew Ross Sorkin posted this piece on why individual investors are fleeing equities.  I should say still fleeing, because individual investors have been leaving the market this entire time.  Here is a post I wrote on the subject in May 2010.

My thought then was that Goldman Sachs and the other market manipulators would eventually want real regulation because they would need it to get customers to come back.  Imagine if we had as little confidence in the FAA as we do in the SEC -- Amtrack might have a viable business!

It now seems like such a polylanna-ish thought that we would ever be able to overcome the influence of Goldman Sachs and the other insiders.  

Our real "problem" is that the rest of the world is in worse shape than we are, and everyone wants to park their cash in the US.  So in the end we only have to be less corrupt than the alternatives to avoid making changes.

Confidence in Effective Government Regulation

There are too relatvely boring stories in the NY Times today that when taken toghether tell a somewhat interesting tale.

Andrew Pollack's piece titled: Modified Salmon Is Safe, F.D.A. Says and Joe Nocera's take on net neutrality with the title: The Struggle for What We Already Have.

I wonder how many readers really think genetically altered salmion is safe enough to feed their kids.  I guess not many.  The FCC's ability to regulate the internet? -- just as shaky.   And the SEC doesn't do much to build the credibility of federal agencies.

It is a miracle the FAA keeps the planes in the sky.  I suppose the highly visible planes falling from the sky scenario is what makes the price of buying the FAA beyond the reach of the hired guns in Washington.  You can bet they are trying everything they can.

So I for one do not believe that the FDA knows any more about the long term effects of the altered salmon than they do about the long term effects of the growth hormones in our beef.  Best to eat as little of that stuff as possible.

Whether or not the FCC gets some regulations to enforce against Comcast -- I am pretty sure Comcast is going to be managing my network traffic however they want.

Here is another post I did a few weeks ago on net neutrality.


The FAA, SEC, and You

We fly because of the FAA is doing its job. The FAA exists because the airlines want it to.  We invest on Wall Street even though we know the SEC is not doing it's job.  Besides proof that greed is more powerful than fear as a motivator in the financial markets, and visa versa for travelers, this shows us that until the financial firms want to be regulated (and call off their dogs in DC), there will be no meaningful financial regulation.

There are a few simple things that the individual investor can do to influence this situation:


  1. Sell your stocks
  2. Influence the institutions (it worked with divestiture from South Africa) 
  3. Tell everyone why you are doing it.


Once such an exit from the markets gets going, others will follow if for no other reason than self preservation.  Which will drive the markets down further.

Once wall street realizes they need regulation to rebuild trust in the markets, then financial reforms will come easily.

The first to advocate for regulation will be the honest firms -- after all, the guys who were maintaining their airplanes before the FAA had to pick between skimping on maintenance (to be competitive) or advocating for regulation to make the other guys maintain their planes.  I don't see any financial firms advocating for regulation yet -- so maybe none of them are honest!

What to do with your money if you take it out of the market?  Check out my recommended portfolio allocation here.