Economics - the Financial Sector

Rose posted this last week and I'd read the article as well.  It's interesting, but the last paragraph stuck in my mind. 

Three years ago, when Daggle bought the Gainesville station, a share of Exxon stock was about $50. Buying and fixing up the station has cost him $800,000, and he hasn't yet drawn a profit from it. "If I had bought the stock," he said, he would have nearly doubled his money and would have "never lifted a finger."

There are a lot of ways to make money in America, but the path to extraordinary wealth is through the financial sector - stocks, bonds, funds, insurance, and credit instruments.  The old money in this country, the extreme money handed down generation to generation from Railroad, oil, and property fortunes is tied up in the finance sector. 

I think that's bad because this country ought to be structured based on what people do and what people make, not where they gamble and how to control the house money in a national casino.  Look at the credit crisis for example and see what happens when too many people get in the game of deregulated finance - there's a bubble and then a crunch and a lot of people got obscenely wealthy and a lot of people lost their ass.  In the meantime nothing was made, nothing was created, no new technologies were developed and no real jobs were created.  It's an imaginary business manipulating digital money in a computer system.  It's divorced from anything in the real world.

This is the lesson from Enron that we still haven't learned yet.  Enron ran a commodities company without any view that there was a commodity at the end.  To them it was just imaginary blips in a computer system to manipulate, free of oversight, for the maximum potential profit.  A tailored video game where money is the score.  Enron however, was just the first commodity in this wave.  Now agriculture, oil, and water are being played the same way - to the same ends.  Just you watch and see. 

When the financial sector becomes the largest component of a nation's economy it portends a decline.  It happened in Spain, the Netherlands, France and England.  These empires built up, diversified, and then got in the business of financing others.  The result is that their own citizens are neglected, poverty and decline follow, and only the ultra-wealthy remain so because once wealth attains a perch national boundaries can't contain it.

Deregulation and tax breaks don't actually create jobs.  There are no solid studies to back up that tenuous logic.  Wealth is for wealth's sake and a vast majority of the money that accumulates at the top is money that would've been in the economy in one form or other in the first place.  However, when it accumulates with the ultra-rich it has a greater chance of leaving our national economy and being spent elsewhere than if it remained in the communities where people live, work and spend.  The mega-corporations funnel that money right out of America like water swirling down the drain.

Back to the original article.  When given a choice between buying a store or station or running a business and taking your money and putting it into stocks the choice should be obvious in a nation - the greater good is serviced by creating businesses and manufacturing value.  Unfortunately the wealth is generated by sitting back and doing nothing except speculating on blips in a computer.  This nation was founded on the principle of work, but now it's run by those who believe in leisure for themselves and suffering for others.

The real culprit in our current mess is a piece of legislation sponsored by Senator Phil Gramm in December of 2000.

It's called the Commodity Futures Modernization Act of 2000(CFMA) and was presented to Congress by its sponsor Senator Phil Gramm (R-TX) in December 2000. It was not written by members of Congress. It was written by lawyers and lobbyists. With no rigorous hearings or debate on the bill, it was passed by Congress and signed by President Bill Clinton just before Christmas recess.

According to Greenberger, the CFMA was a particularly damaging piece of legislation that made possible a type of murky, unregulated investment known as structured investment vehicles. These are the “mystery meats” on the global financial “menu.”

This is the source of what's known as the Enron Exemption. 

Michael Greenberger who served on the Commodity Futures Trading Commission when Phil Gramm enacted this disasterous change puts it this way:

• Should we have an economy that’s based on whether people make good or bad bets? Or should we have an economy where people build companies, create manufacturing, do inventions, advance the American society, make it more productive? This economy is based on people sitting at their computers and making bets all day long. They call it credit default swaps, OTC derivatives, asset backed securities, etc. etc, - makes it all very complicated, but we are rewarding people for sitting at their computers and punching in bets. That’s not the way our economy is going to be built, and India and China, with their focus on science and industry and building real businesses, are going to eat our lunch, unless the American public wakes up and puts an end to an economy that praises and makes heroes out of speculators.

I say no.  This economy should create jobs through creating material goods and valuable services, not through speculating, gambling and and manipulation.

Another interesting thing that I don't have time to go into here is that money earned by collected dividends and stock increases is taxed at a much lower rate than money earned through hard work.  Not only are they sitting back doing nothing to make the world a better place, but they aren't even paying their fair share in the process.  It's stark raving mad.

 - rick, working for a stronger economy through business creation and employment.

Comments

[Success Warrior]

Things like the CDO are destroying the country. Money has become such an abstract idea now that it's like you said, a score on a video game. When you lose, you just play a new game. It really is crazy.