Monday, April 6, 2009

Wall Street is a gamble we can no longer afford to make By: Stephen Edds

For millions of Americans, Wall Street is viewed as an odd curiosity, bordering on a cartoon. When we think of Wall Street, our minds conjure up images of “fat cats” with cigars, and movie characters, like Gordon Gekko from Oliver Stone’s “Wall Street,” uttering the classic line “Greed is good”. Unless you are involved in the financial services industry, your involvement in Wall Street is likely limited to browsing your 401 k statement or checking out the business headlines.

But it’s this perception of Wall Street which is costing us our financial future.

While we weren’t paying attention, Wall Street acted like a teenager with a case of beer and the car keys. Approximately 95 million Americans are trusting over $15 TRILLION to a system that continually betrays that trust, with the help of a complicit Congress, regulatory agencies and select media outlets.

Collapsing banks, bailouts to Wall Street firms; and scandals like those involving former NASDAQ Chairman Bernie Madoff, R. Allen Sanford are just the tip of the news iceberg. This recklessness is having a devastating effect on your 401 k and the economy, as companies downsize, millions are out of work, and our tax money is being spent to bail out firms with bad business practices and no accountability.

It is time we rethink our views of Wall Street.

The problem is that the perception we are being sold about Wall Street is vastly different than the reality. A system that was initially created to support growing businesses and manage risk has evolved into a complex, convoluted gambling scheme that takes as much money as possible from average Americans without producing anything tangible in return. Wall Street promotes the dream of turning a small amount of money into a large amount of money with little effort. But what you are doing is trying to predict an unpredictable, which is the very definition of gambling.

All of the books, seminars, or infomercials promoting ways to “beat the system” are a sham. The authors earn more money from the books and seminars than from following any market prediction system.

The truth is Wall Street is simply the worlds’ largest casino. The belief that you can take a little money and turn it into a lot of money quickly, without effort, is the same concept behind the lottery. But if your neighbor won the lottery, would you be more apt to spend all of your retirement money on lottery tickets?

One of the many striking similarities between casinos and Wall Street is that both need the money of the financial losers to support the winners. There is no money there to back the $15 trillion in stocks, so Wall Street needs new investors to pay those who are cashing out. Without an influx of new investors to pay off the old ones, the market would wither and die. That puts Wall Street’s business model suspiciously close to the definition of a ponzi scheme.

The reality of the market is that for one person to make money, one or more people have to lose money. This may be at the expense of a grandmother, a widow, or retiree trying to recoup their losses.

In most cases, you are simply buying a piece of paper from another person, and gambling on the hope that one day you can sell that paper for more than you paid for it. The paper itself has no actual value, and until you sell it, the value assigned to it is meaningless. At least in a casino, the chips retain their value.

If you are involved in the market, please understand one thing: Wall Street doesn’t care if you make money in the market, or if you lose money in the market, only that you keep your money in motion in the market. That motion creates fees and commissions for the brokers and exchanges. And your broker is not a trained economist, but a trained salesman. Their job is to get you to buy stocks, period.

And the regulatory agencies are largely incompetent. Bernard Madoff committed the greatest fraud in American history, not financial history, but American history.

Madoff was investigated eight times in 16 years by the Securities and Exchange

Commission, with no action taken. And, as Madoff himself said in a 2007 interview, “By and large, in today's regulatory environment, it's virtually impossible to violate rules. And this is something that the public really doesn't understand.” Madoff isn’t the only scam artist, just the largest one.

And yet, Congress has pledged over $700 billion of your tax money to bailout banks and financial firms. So what happened to the trillion dollars that was lost before the bailout? What happened to the $365 billion already spent by Congress? The answer to both questions, according to Congressional hearings, is “no one knows.”

In order to regain control of our financial future, we must re-evaluate our perceptions of Wall Street. Despite their brilliant marketing, Americans must recognize that Wall Street’s business model is a complex gambling operation at the very least, and a legalized ponzi scheme at the worst. We must demand accountability and transparency from those in charge of our money. We must pressure President Obama and Congress into enacting real reforms, instead of empty rhetoric surrounded by sweetheart bailout deals. We must reject the notion that we can create something out of nothing by telling ourselves we’re “investing” instead of gambling, and invest in ourselves and reinvest in our communities. And finally, we must ask ourselves if Wall Street is really worth bailing out? What if those billions per day funneled into Wall Street, which produces nothing in return, was instead spread more effectively in our own communities? I believe it would build a stronger economy in the long run.

Only then can we emerge a stronger country on the other side of this financial crisis.

Stephen Edds, along with T.E. Scott are the authors of “The Losing Game: Why You Can’t Beat Wall Street

T.E. Scott founded and spent twenty-five years as CEO of Scott Pet Products,( building the enterprise into a multimillion-dollar company in Rockville, Indiana. Before starting that business, Scott spent thirty-two years working as a baggage handler for Eastern Airlines. When he lost most of his pension when the company went bankrupt in the 1980s, Scott started on the road to exposing the true nature of Wall Street. Scott is retired and resides in Veedersburg, Indiana.

Stephen Edds is a native of Owensboro, Kentucky and is a graduate of Hanover (Indiana) College. Edds spent fifteen years in corporate marketing communications before striking out on his own as a freelance writer and joining Scott as consumer watchdogs with a focus on exposing Wall Street. Edds moved to Indianapolis in 1996, where he still resides with his wife, Erin, and son Levi.

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1 comment:

Cheryl said...

This idea of Wall Street being a casino is an interesting one. I never thought of it that way, but I can see where you're coming from.

"The Losing Game" sounds like it could help people during this tough economy.