JCL Blog

The People Have Voted: Wall Street Still Not Safe

In our country government is less powerful than business.  This is probably the most visible in the military industrial complex, but there is evidence that the lobbyists call the shots in other areas as well.  A few months back I wrote in this post that Wall Street would not be regulated until it decided it was in its best interest to be regulated. 

Since then our representatives in Washington passed the financial reform bill in an effort to manage the forces that lead to the last melt down and possibly prevent a repeat.  During July, the very month the legislation passed, individual investors took $15 billion more out of equities than they put in, and so far this year, the total cash flow out of the stock market has been $33 billion.   The people are voting with their wallets and the verdict is that the stock market is not safe for the individual investor - reform legislation or not.  

If you don't know who the sucker is at the poker table -- it is probably you.  A couple more years of this and the Wall Street firms may just start asking for real reforms to reassure the public that the market is regulated and safe.

Seven Years to the Next Bubble Bursting?

I have posted several rants in the past about Wall Street and Washington, so now that the reform bill is reaching what appears to be its final form I suppose I should follow up.

As with just about anything anymore, these complex problems seem to require complex fixes.  I thought putting Glass Stegal back in and putting greater restrictions on publicly traded companies that trade for their own account would do the trick -- but hey -- I am definitely not an expert.

Here is a good article by Gretchen Morgenson from the Sunday NY Times that more or less boils it down.

Some good parts, some bad parts, but in the end there are still going to be banks that are too big to fail.  So set your alarm clock for seven years from now and hold on for the next round of the roller coaster.


Literally without precedent.  The financial models that brought down our economy (and still could) were incapable of managing events that were without precedent.  The quants call these black swans because mathematically the conditions that created them were impossible to model despite the fact that they do exist.  And we can all see them.  Time and again we allow these super smart people to convince each other that black swans cannot exist.  After convincing each other they eventually convince everyone else and presto the bubble is born.  

There is at least one unprecedented financial event every ten years and more non financial ones.  The discovery of the new world, the invention of the telephone, penicillin, the airplane, and the computer - all unprecedented. The collapse of the ruble, the dot com bust, the mortgage bubble - all unprecedented.

The next one will be unprecedented too and those guys will look at us again and say who could have predicted this?

What if we could convince these big brains to focus on solving real problems instead of finding new ways to game the financial system for personal gain? 

Step one?  Stop giving them our money to invest. 

Step two? Don't bail them out.

We fly because the airlines don't profit from our death (and the FAA helps a little).  We should not put our money into the hands of people that make even more money when they crash the market.

If we all start buying t bills we could take our debt back from the Chinese and put the wall street parasites out of business.

We can't do that you say.  We will lose too much money.  T bills pay less than 1 point and historically the market returns 15.  Well, try this portfolio allocation:  one quarter in each treasuries, residential real estate (your home - maybe even without a mortgage), foreign stocks, and start ups.  You can do all of this without the aid of anyone on wall street.  If enough of us do it those Wall Street guys would really start looking for an answer to their credibility problem. 

If we don't do it, then we deserve to get wiped out during the next unprecedented event - which even I know will happen before 2020.