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Wall Streets Biggest Con Game

Why is Wall St. at war to keep financial innovation secret, hidden, and without public transparency? Why is Wall Street spending millions on lobbyists to kill financial-regulation reforms?

Because Wall Street rakes in tens of billions of dollars annually from their financial innovations, gambling in the shadowy $670 trillion global derivatives market. And Wall Street does not want government, investors or competitors digging into their “financial weapons of mass destruction,” as Buffett calls them.

Remember, financial innovation is just a Wall Street code word. Translated it simply means derivatives and other proprietary secrets like the high-frequency trading algorithms used by their quants.

Yes, Wall Street wants you to believe that financial innovations also help Main Street, but that’s just Wall Street lobbyist propaganda to mislead the public, regulators and legislators. Remember when Washington proposed standardized mortgages as a way to help consumers? Wall Street attacked, spending millions to kill it.

Wall Street has no interest in helping Main Street. Time magazine’s Justin Fox, author of “The Myth of the Rational Market,” said it best in his “Curious Capitalist” column.

Most so-called financial innovations are “just new ways to fleece customers or hide risk, and all major financial crises have been associated with some financial innovation.” Even credit-card innovations are used against customers as marketing tools to increase fees. The truth is: Wall Street’s greed-driven financial innovations fuel our bubble/meltdown cycles in many ways.

Time to Drain Wall Street Bonus Pool

NEW YORK (Fortune) — Is the Fed about to hit the brakes on the Wall Street gravy train?

A year after they survived the financial meltdown with considerable taxpayer help, Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) stand to spend $35 billion combined this year on employee compensation.

The average Goldman worker is on track to take down more than $600,000 in pay and perks — in line with levels from 2007, before the economy cracked. Former Federal Reserve chief Paul Volcker said last month that Wall Street pay has gotten “grotesquely large.”

But the bonus bubble could be peaking. After years of lassitude, the Federal Reserve is preparing to force big banks to abide by longstanding rules banning excessive or inappropriate banker pay.

What’s more, regulators appear to be paying special attention to the risks posed by the lucrative trading that has sent profits at firms like Goldman and JPMorgan Chase soaring just months after last fall’s brush with disaster.

Given the bruising the Fed has taken for its failure to act during the credit bubble, some commentators believe officials will flex their muscles.

America is Being Governed by Callous Children

The new economic statistics put growth at a healthy 3.5% for the third quarter. We should be dancing in the streets. No one is, because no one has any faith in these numbers. Waves of money are sloshing through the system, creating a false rising tide that lifts all boats for the moment.

The tide will recede. The boats aren’t rising, they’re bobbing, and will settle. No one believes the bad time is over. No one thinks we’re entering a new age of abundance. No one thinks it will ever be the same as before 2008. Economists, statisticians, forecasters and market specialists will argue about what the new numbers mean, but no one believes them, either.

Among the things swept away in 2008 was public confidence in the experts. The experts missed the crash. They’ll miss the meaning of this moment, too.

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes.

The biggest long-term threat is that people are becoming and have become disheartened.

Wall Street on the Lam

Slashing executive salaries, bonuses and perks at the seven bailed-out companies that gorged most gluttonously at the public trough is emotionally satisfying, but it shouldn’t be. It’s like arresting jaywalkers while ignoring the bank robbery that’s happening in broad daylight down the block.

Don’t get me wrong. The Obama administration’s “pay czar,” Kenneth Feinberg, is right to put a lid on compensation at the Not-So-Magnificent Seven: Citigroup, Bank of America, General Motors, Chrysler, GMAC, Chrysler Financial and the unforgettable AIG.

Twenty-five of the biggest earners at each of those firms will have their overall compensation cut roughly in half, and most of that will come as restricted company stock, not cash. This means that what they ultimately reap, when they are eventually allowed to sell the stock, will depend on how well the company performs — which will depend on how well the executives do their jobs.

Tying pay to performance: What a concept.

Feinberg even muscled outgoing Bank of America chief executive Kenneth Lewis into accepting no pay or bonus for this year. But Lewis will still have an estimated $70 million retirement package to keep him warm at night, so hold your tears.

It’s nice to know that there must be some pooh-bah at B of A, Citigroup or AIG who will have to live without the new $90,000 Porsche Panamera he was planning to buy. But Feinberg’s writ of imperial decree doesn’t extend beyond those seven companies, and the rest of Wall Street gives no indication of remotely understanding what the big deal is about compensation.

Goldman Sachs, for example, has a bonus pool this year of at least $16 billion and perhaps as much as $23 billion.

But all this is just a sideshow. The main event is the limited, far-too-modest attempt by the Obama administration and Congress to curb the irresponsible Wall Street practices that led to the financial meltdown — and, if unaddressed, will lead inexorably to the next crisis.

Deregulation allowed the financial marketplace to devolve from an institution that served the overall economy — by allocating capital most efficiently to the companies that could put it to best use — into an institution whose primary mission was to serve itself.

The vast over-the-counter trade in instruments known as derivatives, nominally worth a staggering $600 trillion worldwide, is largely an exercise in make-believe. Firms make highly leveraged investments in exotic securities whose true value is opaque. Then they hedge these investments by buying insurance against potential losses, although the insurer doesn’t have a fraction of the money it would need to make good on all its promises.

All this investing and hedging generate huge transaction fees and big profits, which can be skimmed off the top each year.

Everything’s fine, until there’s some disruption in the real economy — a downturn in the housing market, say. If the disruption is severe enough, the web of make-believe deals starts to unravel. At which point the government steps in and bails everybody out.

Capping salaries and bonuses is fine. But we need to pay attention to the guys in ski masks with bulging bags of money slung over their shoulders. They’re about to jump into the getaway car.

Is Capitalism a Love Story or Nightmare?

Many Americans think that Capitalism and Democracy are the same thing.  This is simply not true.

Michael Moore has proven again and again that he has a remarkable feel for where the zeitgeist is heading. He’s like a zeitgeist divining rod.

Roger and Me was way ahead of the curve on the collapse of the auto-industry. Fahrenheit 9/11 was way ahead of the curve on the collapse of the house of cards the Bush administration used to lead us to war in Iraq. Sicko was way ahead of the curve on the collapse of the US health care system. And now with his new movie Capitalism: A Love Story he is riding the wave of the collapse of trust in our country’s financial system.

The film, which opens in New York and Los Angeles on Wednesday, and all across the country on October 2nd, is a withering indictment of the current economic order, covering everything from Wall Street’s casino mentality to for-profit prisons, from Goldman Sachs’ sway in Washington to the poverty-level pay of many airline pilots, from the tidal wave of foreclosures to the tragic consequences of runaway greed.

The film also turns the spotlight on some underreported gems: an internal Citibank report happily declaring America a “plutonomy,” with 1 percent of the population controlling 95 percent of the wealth; an expose of “dead peasant” insurance policies that have companies cashing in on the untimely deaths of their employees; and amazing footage of FDR, found buried in a film archive and not seen in decades, calling for a Second Bill of Rights that would guarantee all Americans a useful job, a decent home, adequate health care, and a good education.

In capitalism as envisioned by its leading lights, including Adam Smith and Alfred Marshall, you need a moral foundation in order for free markets to work. And when a company fails, it fails. It doesn’t get bailed out using trillions of dollars of taxpayer money. What we have right now is Corporatism. It’s welfare for the rich. It’s the government picking winners and losers. It’s Wall Street having their taxpayer-funded cake and eating it too. It’s socialized losses and privatized gains.

While unfurling yellow crime scene tape in front of a “too big to fail” bank, he became aware of a group of New York’s finest approaching him. Moore has a long history of dealing with policemen and security guards trying to shut him down, but in this case he knew he was, however temporarily, defacing private property. And his shooting schedule didn’t leave room for a detour to the local jail. So, as the lead officer came closer, Moore tried to deflect him, saying: “Just doing a little comedy here, officer. I’ll be gone in a minute, and will clean up before I go.”

The officer looked at him for a moment, then leaned in: “Take all the time you need.” He nodded to the bank and said, “These guys wiped out a lot of our Police Pension Funds.” The officer turned and slowly headed back to his squad car. Moore wanted to put the moment in his film, but realized it could cost the cop his job, and decided to leave it out. “When they’ve lost the police,” he told me, “you know they’re in trouble.”

Wall St. is Profiting Big From Trading With the Fed and Taxpayer Money

Wall Street banks are reaping outsized profits by trading with the Federal Reserve, raising questions about whether the central bank is driving hard enough bargains in its dealings with private sector counterparties, officials and industry executives say.

The Fed has emerged as one of Wall Street’s biggest customers during the financial crisis, buying massive amounts of securities to help stabilise the markets. In some cases, such as the market for mortgage-backed securities, the Fed buys more bonds than any other party.

However, the Fed is not a typical market player. In the interests of transparency, it often announces its intention to buy particular securities in advance. A former Fed official said this strategy enables banks to sell these securities to the Fed at an inflated price.

“You can make big money trading with the government,” said an executive at one leading investment management firm. “The government is a huge buyer and seller and Wall Street has all the pricing power.”

A former official of the US Treasury and the Fed said the situation had reached the point that “everyone games them. Their transparency hurts them. Everyone picks their pocket.”

Barney Frank, chairman of the House financial services committee, said the potential profiteering may be part of the price for stabilising the financial system.

“You can’t rescue the credit system without benefiting some of the people in it.” Still, Mr Frank said Congress would be watching. “We don’t want the Fed to drive the hardest possible bargain, but we don’t want them to get ripped off.”