Went and saw Wall Street 2 last night. Michael Douglas does an especially credible job as ex-trader convicted of financial felonies. The phenomenon of greed, addiction to money, is especially interesting to me because, unlike casino gambling, there is supposed to be SOME rationale to the chaos on the trading floor. In principle, the financial market operates on the basic principle that investors (people with money to spare) put money into the hands of creative enterprises (people who need money) and may reap a reward for taking a risk. But is Wall Street still respecting the ground rules above, or has it gone crazy?
The case against Wall Street insanity: The large bonuses transferred to traders and CEOs are what the free market dictates. Think traders are payed too much? Fire him/her, he/she'll find just as good a pay elsewhere doing the same thing. That's exactly what competition does, and it's efficient in determining who gets payed what! Worried about the ups and downs of the market? Relax, that's just the nature of the market, the name of the game, the Yin to your Yang, the Ken to your Barbie ... uhhmm, never mind. Just remember to buy low and sell high! And keep in mind that any intervention by a socialist government distorts the market and skews it away from what it should be – a free exchange of capital and shares that ultimately and automatically picks winners and losers. America is a prime example of what capitalism can achieve. And where would America be without markets that allowed entrepreneurs to leverage large sums of money, put them to good use, grow the economy, and increase tax revenues for governments? Yes, the market creates inequalities between people, but that's just the American dream – the market does not pick winners and losers at random, it picks the people who work the hardest, have the better ideas, and are willing to take risk to achieve their objective.
The case for Wall Street insanity: What the market IS and what the market SHOULD BE are two different things. And the current financial markets are anything but free if your definition of free is that all information is equally available to all market participants all the time. Insider trading cannot be dismissed as nuisance noise as even a single trader can move billions of dollars around at a single click of the mouse. Even after the most recent market crash, the regulating instances such as the SEC are a pale shadow of what they should be with respect to investigating and punishing white-collar crimes. Worse of all, speculation remains unchecked, and it kills ... it really does because speculative valuation - economic bubbles being one example – distort the market like no government intervention ever could, and with horrifying results when the thing goes "pop". If your mutual fund tracked the Dow Jones Industrial Average (DJIA), the ups and downs took you on quite the risk joy ride, haven't they? But for all that risk you put your money through, the DJIA (and your portfolio) is no higher now than it was over 10 years ago. Why? Many reasons, but methods relying on lightening-quick computers and fancy mathematical models haven't helped – hedge funds and high-frequency trading, to name a few, drain profit from the market and effectively act as a tax on you, the small investor. The recent economic crash shows that markets cannot regulate themselves – without a "socialist" government intervention, the financial sector would be dead, along with most of the American economy. All these are only some examples of what Wall Street should NOT be. But sadly it is.
Verdict: The concept behind capital markets is probably not insane, but we hold the right to review that one in the future. What is insane is current Wall Street where the market is not viewed as something to grow the economy and make the country prosper but as something to be exploited for short-term gain. Traders do not speak in terms of the next 25, 50, or 100 years but in terms of milliseconds or microseconds. There is a litany of tools – shorts, options, derivatives – that have legitimate uses but can compound risk and can have devastating effects in speculative settings. There are other tools – mortgage-backed securities, collateralized mortgage obligations (I personally just call it SRMM, or "systematic risk mystery meat) – that are just designed to fuck you and the rest of the world up the ass but that some greedy mother fucker will gladly sell you to make a buck. There's so much more to say, but it should be obvious how insane Wall Street already is.
My worry here is how do you keep greed and speculation out from an otherwise pretty good idea – the free market? Maybe we are just witnessing the logical extension of a system that preys on the basest of human instincts and that is predicated on ever-lasting growth on a planet with finite resources. If financial consultants aren't worried about that when they talk to you about your financial future, then they're insane too.
So there you have it, Wall Street. You know who you are, and you've been "Certified Crazy". And we're not happy.
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