TheMillerCircle.org

My take on the Wall Street makeover is much like yours. It is not remotely clear to anyone how far the collapse of the Wall Street financial structure will penetrate into the general economy. But as Ike came ashore in Texas, it seemed to spin upward into Wall Street where its greatest damage was in evidence. One thing seems certain: we have not hit the financial bottom yet. Other likely failures are out there, including Washington Mutual and A.I.G. insurance and all of their problems stem from the same single source–too much exposure to failing mortgages. Had the Fed stepped in, together with congressional approval, eighteen months ago when the mortgage situation looked perilous, and worked to solve it from the bottom up, getting people back into their homes, this disaster could have been minimized. But, something probably had to happen. Housing prices were rising too fast, the whole country went on a credit binge and most importantly for the companies that got sold or went broke, they were over-leveraged. They had only a small percentage of their assets covered with liquidity and when panic hits, everything goes in one direction and out the window go all the models. Financial paradise is lost. Most financial experts predict that housing prices have not reached rock bottom and therefore more pain is yet to come.

But here’s the silver lining. The collapse of Wall Street may finally lead to a more decentralized and diversified investment community. Bank of America does not have its corporate headquarters on Wall Street, but on Mainstreet USA (North Carolina). The decentralization of Wall Street could lead to a more diversified set of investment strategies and mechanisms and move us away from the fix for huge, immediate profiteering, the kind that only serves the interests of those with a lot of money to begin with. This might stop the herd mentality that intermittently grips Wall Street.

For the past fifteen to twenty years, we have been exposed to Wall Street gimmickry that produced gigantic profits for people at the top. On Wall Street, we have a bunch of sheep where one or two good ideas seem to grab the entire financial residents of the investment community, who then march in lock-step down the same road to excessive, but temporary profitability. We had the dot com fiasco, which was a house of cards, based on companies that never made any money. But because they had entered into the sweep stakes of the internet, you could make a short-term profit of astounding proportion to your investment–as long as you knew when to get out. Knowing when to jump ship was the key to profitability. Eventually, investors realized that companies in which you invest that never turn a profit are not really worth investing in and when the dot com crash came, a lot of investors lost a lot of money. My own retirement was heavily invested in high tech and it lost a lot of value when the dot com crash came. If you got out at the right time, you could retire with a fortune and a nice parachute, but somebody else had to pay the price.

The Feds realized that if something didn’t step in to replace the dot com crash, Wall Street would be singing the blues. So, the interest rates got dramatically lower. Home loans became less expensive, and housing values took off. Of course, those living on income from bonds, like many retirees, saw their income drop considerably. But borrowing against the increase value of your home replaced the dot com opportunity of the moment. Our consumer-based economy was buoyed by housing value escalation. You could invest in the securities derived from mortgages and everyone seemed to jump on that bandwagon. For many investment firms, it was too tempting to avoid, particularly when the sub-prime option, a mortgage gimmick of criminal proportions, came in as the new way to get new home owners to buy a house. Those sub-prime ARM mortgages suddenly escalated to a point where homeowners couldn’t afford them, so they walked away. Now the housing bubble has burst and with high gas prices, storms and flooding that are costing $ billions for each iteration every few years, we are beginning to see a little more of a future that isn’t quite as bright as the false bubble mentality we have been living under for nearly twenty years. But it might be refreshing to get out from under investments and investors as somehow leading the nation and focusing our interests. As humans, we have a natural kind of curiosity that should be better fulfilled by things other than turning a profit. What ever happened to reading? The decentralization of Wall Street and the elimination of investment fads based on hype, together with companies whose increased productivity is shared with their workers, to provide better middle class income growth, the return of labor unions powerful enough to effect these changes, just might bring us to a better place, one less reliant on profits as the epicenter of human cerebralization. Learn to live more like Huck Finn and find pleasure in life, not in our cars, but in our ideas. We are going to need a lot of new ideas to confront the trajectory we are on for the climate changes that are knocking on our door and looming ever more dangerous as a component to our future. A decentralized Wall Street might just be more amenable to addressing those kinds of problems by getting away from the Sheep behavior that can happen overnight, when everyone lives in the same neighborhood.

RFM