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.