Streetwise for October 30

Streetwise for Sunday, October 30, 2011

 

 

Streetwise

 

Lauren Rudd

 

Sunday, October 30, 2011

 

 

Greed Remains Unbridled

 

They get on me and wanna know, Lauren why do you write so much. Put yourself in my position. If I write all night long it's a family tradition. Over and over everybody made my prediction. So if I try to right what’s wrong I'm simply carryin' on an old family tradition.”

 

Once again my apologies and thanks to Hank Williams, Jr.

 

While a variety of scary ghosts and goblins will soon be knocking on your door asking for treats, none will be scarier than Wall Street.  As both an economist and Wall Street analyst, I am increasingly concerned over the continued decimation of investor confidence brought about by an unadulterated fear of the markets.

 

That fear contributed heavily to the decision by investors to withdraw approximately $15.3 billion from equity mutual funds in September and nearly $60 billion over the past three months. Not surprising, especially when you also consider market volatility and the decline in economic prosperity.

 

For 2010, the nation’s median income point, meaning half the labor pool earned more and half earned less, was down 1.2 percent to $26,364, the lowest point since 1999. Average annual income, adjusted for inflation, was $39,959, an increase of $46 over 2009 or slightly less than one dollar per week.

 

Total wages were just over 6 trillion dollars. Sound like a lot? Adjusted for inflation, that number is less than each of the previous four years and almost identical to 2005, when the U.S. population was 4.2 percent smaller. However, the number of wage earners making over $1 million increased 20 percent over 2009.

 

Those statistics come from the Social Security Medicare tax database, which processes every W-2 wage form and includes all wages, salaries, bonuses, independent contractor net income and other compensation for services subject to the Medicare tax.

 

Adding further credence to the obvious, the Congressional Budget Office recently released its own study concluding that income distribution had become increasingly skewed in the last three decades. No, really?

 

Meanwhile, our nation’s unofficial gauge of human misery rose last month, reaching a 28-year high. So is it any wonder that protest movements, such as Occupy Wall Street, highlight income inequality and a disenfranchisement with Wall Street?

 

And how are the major players on Wall Street reacting to the rise of discontentment that has landed on their doorstep? Despite receiving $4.7 trillion in taxpayer bailout funds, those gargantuan members of the financial world continue anew to direct their services towards the wealthiest segment of the population.

 

Bank of America announced that it was planning to nearly double the number of “Financial Solutions Advisors” designated to service affluent clients. After all, it is those clients that have the potential to generate the hefty commissions and advisory fees that sustain outsized salaries and bonuses.

 

The large banks are also lobbying intensely to emasculate the Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank bill, because it reins in some of their lucrative high risk franchises. The main bone of contention being the “Volcker Rule” that curbs proprietary trading, limits involvement with hedge and private equity funds, and caps domestic expansion. These are all factors that played a major role in the causation of the Great Recession.

 

And the Federal Reserve, forced to try and right the economy single handedly because of Congressional inaction, has received a fusillade of criticism from bankers, Congress, and even a few of its own members. While former Chairman Alan Greenspan did not brook criticism, Chairman Ben Bernanke has shown a greater willingness to consider dissenting opinions.

 

As a result, Richard Fisher, Narayana Kocherlakota and Charles Plosser, the heads of the Dallas, Minneapolis and Philadelphia Federal Reserve Banks respectively, have spoken openly against low interest rates facilitated by Fed bond purchases.

 

Paul Krugman put it well. He said, “We continue our descent into an economic Dark Age.” Let me be a bit more ardent. Unbridled greed has us careening headlong into economic hell.