Wall Street Wants To Burn Down Your House

[marmar]

from the WorkingLife blog:



Wall Street Wants To Burn Down Your House
by Jonathan Tasini

Tuesday 16 of February, 2010


Wall Street loves a disaster. The more chaos, the better--because, no matter what happens to regular people, chaos can mean lots of profits. That is why the deep reform we need in the way the financial world works is so important--and why Wall Street is fighting so hard to stop it.

This past Friday, there was a very illuminating column in the Financial Times by James Rickards who wrote:

We have given Wall Street huge incentives to burn down your house.

Rickards' article used Greece's financial woes as the example for the way Wall Street makes money. Start by understanding Rickards' perspective: he is the former general counsel of Long-Term Capital Management--which was, in some sense, a canary in the coal mine to what we went through in 2008. In 1998, LTCM got into huge trouble and caused a financial panic that financial and political leaders believed might cause a worldwide collapse. Sound familiar?

The short version: LTCM was a hedge fund that used complex mathematical formulas to make profits on trading i.e., they actually made nothing real but pocketed profits based on financial alchemy--with a system that was entirely based on huge leverage. That is, debt and guesswork. LTCM did all this with a message that its arcane and complex trading system would make money like a "vacuum sucking up nickels that no one else could see."

There are two important points here. First, LTCM had to be bailed out by...the Federal Reserve Bank, which did nothing to stop the very risk trading in advance. Second, there was, then, no substantial change in the way Wall Street did its business. Had there been real reform, we might have avoided 2008. ..............(more)

The complete piece is at: http://www.workinglife.org/blogs/view_post.php?content_id=14716