Shrinking Wall Street: Getting Wall Street Off of Main Street

[Octafish]

Something to occupy the minds of people who like to know what's going on:

Getting Wall Street Off of Main Street

Shrinking Wall Street

by MOSHE ADLER
CounterPunch
July 23, 2012

If you want to make Adam Smith, the founder of economics, and George Stigler, the Nobel Prize winning economist, spin in their graves, say the words “LIBOR scandal.” LIBOR – London Interbank Offered Rate — is, as everyone learned this past week, the benchmark interest rate that members of the British Bankers Association collude to set. In 1776, in The Wealth of Nations, Smith wrote “(p)eople of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Smith would have banned the British Bankers Association altogether. But almost 250 years later, what does the Bank of England, do? It blesses the collusion by “supervising” it.

Why would George Stigler spin in his grave? Because to him, the LIBOR “scandal” would be nothing but regulation as usual. It is routine for regulators to be captured by the executives of the industry they regulate, Stigler explained in his article “The Theory of Economic Regulation.” The benefits from regulator malfeasance are concentrated on a small group of individuals–the executives of the industry–whereas the costs of such malfeasance are diffused among tens and hundreds of millions of members of the public. Because the executives have a huge monetary incentive to prevent the regulator from doing his or her job, they are willing to invest large amounts to get what they want. LIBOR is just the latest example of Stigler’s theory at work.

SNIP...

The most remarkable thing about Wall Street is that while it flourishes, working people wither. How can this be? The reason for this is the near-zero-interest-rates policy of Ben Bernanke, the chairman of the Fed. A five year Certificate of Deposit pays now on average less than 1% a year and that has made it impossible for savers to save, except by putting their savings into stocks; this is why the prices of stocks are high. The ones who benefit from these high prices the most are the executives, because they use these bloated stock prices to justify their outlandish “compensation.” As social policy, however, forcing people to buy stocks has no justification.

SNIP...

But what does all of this have to do with the regulation of Wall Street? First, when savers are no longer forced to give their money to gambles in stocks, the share of the public that has a stake in Wall Street will be far smaller. And when Wall Street no longer has captive clients, it will have to become more transparent and behave more honestly. Consumers will thus become the regulators. Even a new, weaker and therefore more honest, Wall Street would still have to be regulated, and this regulation would still have the challenges that Stigler identified. But the damage from the regulatory failures that are sure to continue would be miniscule in comparison to those we have now. Best of all, a weaker Wall Street would mean stronger investments, both private and public, lower executive “compensation,” and, as a result, as much healthier economy for the rest of us.

CONTINUED...

http://www.counterpunch.org/2012/07/23/shrinking-wall-street/

Gee. For any of this to happen would require a Government of the United States that was not held captive by the same monied interest that pretty much own the system.

What to do? What to do?

[TomClash]

1. Wall Street is already shrinking

And the good jobs are going with it.

[Octafish]

2. Right. They're laying off the deadwood, GE-style.

Unfortunately, Wall Street's princes still hold power and that's what needs to be shrunk down so small we can drown it in a bathtub.

[TomClash]

5. Actually it is much mor than "deadwood"

But I suppose working people no longer count on either side of the equation.

[Zorra]

3. Thanks, Octafish. Recommend. nt

[Octafish]

4. You are most welcome, Zorra. Didya see what kpete found?

It's also a must-read for many reasons:

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=1005390

Why We’re Screwed

MONDAY, JULY 23, 2012
By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City. Cross posted from Economonitor

After 1990 we removed what was left of financial regulations following the flurry of deregulation of the early 1980s that had freed the thrifts so that they could self-destruct. And we are shocked, SHOCKED!, that thieves took over the financial system.

Nay, they took over the whole economy and the political system lock, stock, and barrel. They didn’t just blow up finance, they oversaw the swiftest transfer of wealth to the very top the world has ever seen. They screwed workers out of their jobs, they screwed homeowners out of their houses, they screwed retirees out of their pensions, and they screwed municipalities out of their revenues and assets.

Financiers are forcing schools, parks, pools, fire departments, senior citizen centers, and libraries to shut down. They are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in firesales at prices rigged by twenty-something traders at the biggest and most corrupt institutions the world has ever known.

And since they’ve bought the politicians, the policy-makers, and the courts, no one will stop it. Few will even discuss it, since most university administrations have similarly been bought off—in many cases, the universities are even headed by corporate “leaders”–and their professors are on Wall Street’s payrolls.

CONTINUED...

http://www.nakedcapitalism.com/2012/07/randy-wray-why-were-screwed.html#5QdUhkSiydxXqpBQ.99

Gee whiz.