(I’ve updated this slightly for 2020 but not much. What has changed most is the vaster pile of company corpses, mangled and murdered by stock-price-driven company management.)
Actually, Wall Street is a cancer.
Some part of the body that once had a function but has grown, mutated, and acts to kill the host.
The key to understanding Wall Street is to come to grips with the fact that what goes on there is not, for the vast majority of activities, investment.
How can that be with thousands of screen and print ads screaming their desire to help you with investment?
Understanding starts by looking at actual investment.
Consider, there’s a car wash down the street, or an apartment building, or whatever. You want to buy it or maybe lend some money to it. In all cases, you are providing capital or gaining ownership in order to produce something that can be exchanged. Maybe you want to produce more of that something. Maybe you just want to continue the production–usually buying a row of apartment buildings comes with the intent to continue to see renters. Or maybe it’s to tear the apartments down and put in a mall or a restaurant or a factory? In any case, you are intimately involved with the fate of your investment. You want it to become something greater, to produce more of something, maybe not even the same something, or at least continue to produce.
On Wall Street what matters is if the stock price rises or falls. That is not the same thing as increased or better production. In fact, it rarely is.
Most Wall Street “investors” don’t have a clue what it is they are “investing” in. Certainly, pure investment does contain a gamble. But that does not also mean that pure gambling is investing.
From a certain viewpoint, everything is a gamble. But when the only concern is the show of the dice–or the show of the stock price–then it’s not investing. It’s speculation. It’s playing the ponies. It’s rolling the roulette wheel. It’s gambling. And gamblers and speculators will do anything they can get away with to get the dice to show what they need for their return. That anything doesn’t have to be good for the company. It doesn’t have to be good for the rest of the gamblers. It just has to make someone a winner.
That something could be stripping employees of the retirement they’ve earned. It could be running the company into bankruptcy with whatever damage that causes to people and other companies. It could be giving the technology to a foreign company. It could be anything. So long as it makes for a more predictable bet, some speculator is planning it and trying for their own killing.
When you set up casinos to get a cut from this sort of gambling, then you have Wall Street. The brokers and “investment” firms are the “house.” They own the games. For each play, they get a cut. It doesn’t matter how much–or more often, how little–you or I walk away with. What matters is that there are enough plays that the house percentage makes them rich.
This frantic monument of speculation does virtually nothing beneficial for investment, but it does turn investment from its necessary function and makes it cancerous. The cancer metastasizes to distant parts of the economy. It is the correct term for what Wall Street has done to our industries–especially those who lead those industries.
Chairmen and CEO’s are today much more concerned with what Wall Street thinks–that is, where the stock price is going–than they are with the welfare of the company they are to manage. Most bonuses for upper executives are made in terms of stock options. Regardless of how the bonus terms are couched in the individual executive contracts, the key driver in executive decision making is the stock price.
And Wall Street is only concerned with what they think will make the stock price change for better or worse.
But, say the objectors, that is exactly what we want: Companies should respond to Wall Street.
Perhaps. If Wall Street was concerned with increased or better production–and was intimate with the companies enough to have sensible things to add–then maybe. But that is not the case.
What Wall Street knows is what every gambler and speculator knows: They make money if the price changes. The price changes when other speculators are convinced the price should change. What convinces other speculators is rumor, popularity, conjecture, fear or elation. What convinces other gamblers is a perceived chance to scratch the itch of their greed.
That it is good to be tied to Wall Street is common knowledge–but it’s not real knowledge.
It is just what we’ve been taught.
Just list the major accomplishments of Wall Street in the last 100 years: The Great Depression–and immediately following this triumph of investment: World War II. (You don’t think so? Take just a few minutes to look up the causes of the fall of the Weimar Republic, the German government that Hitler was able to corrupt into Nazi Germany.) Just between those two, the Great Depression and World War II, measure if you can the depth and breadth of horror spread across this planet by the insatiable greed the speculators on Wall Street. And this is just the beginning.
After WWII, we see the metastasizing of Wall Street’s cancer into our government and our foreign policy. From Guatemala to Iran, our government has been on a spree of “protecting American interests,” which translates directly into doing what Wall Street wants. The Cold War was a marvelous excuse to subvert, malign, overthrow, and murder in the name of profit. If you have not read “Inside the Company” by Philip Agee or “Legacy of Ashes” by Tim Weiner, then you don’t know enough about U.S. foreign policy to have an opinion–and you should have an opinion. Not that every effort in the Cold War was a waste or criminal, but consider this: Would there have been a Cold War if there had not been a World War? And consider this–while remembering the Cold War’s supposed foreign policy success–which four communist countries saw the most violent opposition from the United States? The answer is easy. Just look for the four, existing, wholly communist countries. Still drawing a blank? Try these: China, North Korea, Vietnam and Cuba.
If the punitive violence that was so much a part of our country’s policy was successful, then why are those countries still standing? Even the countries where we did succeed very often hate our guts. Drawing a blank? Think of Iran. What? You didn’t know it was one of our successes?
Oh, the list goes on. Wall Street has given us recessions in virtually every decade since WWII, sometimes more than one, all of them brought on by panic of one sort or another on Wall Street. You might ask this very good question: What does Wall Street’s panic have to do with production? With the creation or growing and sale goods? The answer should be: absolutely nothing. Why should our economy fall because some gambler thinks he’s not going to make the killing he’d hoped for? The speculator’s effect on the economy is wholly that of a parasite that has grown so invasive that the parasite is determining the health of the host.
There is no need for us to allow Wall Street’s machinations to determine our economic health. That is the greatest and most damaging lie from which our economy suffers. If Wall Street served its real purpose of providing one of the places for companies to find extra funding–and did that function without the gambling and speculation–which means without the panics–then the economy would not rise and fall with the fear level in the stock market. It is possible that there would be no measurable fear level when investing.
There’s more. Business decisions are driven by what will make the speculators pant. Insane decisions are made in the board room and the legislature driven by the need for speculators to have a reason to speculate. For instance, where was information systems industry developed, including the computer chip, the LCD and the software? Which country was the industrial powerhouse of the world? Where are those devices made today? What industry is left in this country? It might have been before you were born, but it was the U.S. Where are these industries now? Mostly not here. Who drove the decisions that sent all of that overseas? The answer is, by and large, Wall Street–and congressman in Wall Street’s pocket.
The greatest economic advantages a country and a people could hope for were squandered, given away, sent off to our competition, because some gamblers in the stock market thought they saw a way to make a stock price rise or fall.
And today, after Wall Street and their bankers figured out how to gamble on the value of our homes, our home prices first inflated and then crashed. So now, if you don’t want to risk your capital speculating with stocks, you do not even have the safe haven of real estate.
But there’s more. The crash in our economy brought on by the Wall Street investment fiascos echo around the world. In 2008, Governments teetered on the edge from Europe to Asia. Many of them still suffer. We already know what follows economic chaos. If somehow you don’t, then you needed to open your ears to the saber rattling in the press, echoing that from Washington.
These things are not accidents. That is the one thing that history teaches. The fools who start the chaos may not understand or care about the results, but they pull their triggers deliberately. Those who claim otherwise depend upon your ignorance.
Is it possible I’ve missed something here? Sure. But something important? I think not. The complexity that is modern economics is artificial. Real economics is as simple as “I have something you want” and “What do you have that I want?” The complexity we have in investment exists largely because it affords opportunities to siphon from the flow of exchange and much less so because it facilitates exchange.
To anyone who thinks Wall Street is a friend of this country, I say, think again.