Chaos of Financial Reform
What is really wrong with our Financial Systems?
Non Producers
Production of goods and services is essential in any prosperous economy.
Can an economy prosper if it is a service economy only?
The American economy can not. That however is just part of the answer.
The second part of the answer to the question lies in what is considered a service.
Care for patients in a nursing home is an extremely important service
but it has not always enjoyed much prestige or decent remuneration.
Another industry, an altogether different industry, is broadly classified as financial services.
Brokerage firms, hedge funds, investment banks, venture capital firms and
related businesses are all in this very large financial service sector.
All are all very prestigious and the remuneration is much higher than any part of the
American economy. Not even film or sports stars come close to Hedge Fund Managers!
My contention is that the American economy is in danger of collapse
because the financial services sector in most of its many aspects and transactions is no longer stimulating or funding essential services needed for growth in a capitalist society.
Here are the facts to bolster my contention: the money supply is higher than it has ever been
(M1, M2, M3 and MO and all reserve metals in private and public accounts is $50 Trillion)
The Derivative Markets in the aggregate are believed to be $600 Trillion.
Capital Markets are as an aggregate lower than they have been in 20 years as a percentage of the overall economy. Estimates are almost impossible to make but it could be as low as $600 Billion and no more than $2 Trillion. How can this be? More importantly; how could this have happened?
Venture Capital Firms are important and essential. Yet these firms and the pools of capital that they need are not growing. In fact these markets are at best stagnant and in many cases shrinking.
Twenty years ago "Derivatives and Derivative Funds" were a small part of the financial markets.
Perhaps, $1 Trillion tops. They were mostly used in commodity trades for industrial and agricultural uses. Savvy folks hedged against price spikes or bad years. That was fine; the transactions served a purpose and in fact aided real production.
The REAL PROBLEM:
Profit is not production. For the past fifty year the "bean counters" have been castigated but never restrained for practices that emphasized short term profits at the expense of long term growth.
Jobs and economic and social stability were somehow not considered important and no serious government policy fostered any kind of plan or oversight to protect them.
If it had simply been just an omission; the lack of government policy would not have been so bad but
it was countered by policies that fostered and encouraged the formation of hedge funds, offshore funds, investment and brokerage funds, trust funds that all delved into growth via sales and trading of "Derivatives and Derivative Funds".
Special interest groups and lobbies were allowed to write self serving regulations in the few cases when regulations were even written. Few if any regulatory authority over the financial sectors was
ever enforced seriously. The amazing thing about the last 20 years on Wall Street and in Washington
is that a hundred more Barney Franks and Bernard Madoffs did not emerge; no one was paying attention or looking at the long term. The real brains or "players" were busy selling "Derivatives". 100% legal and a license to make huge profits without producing anything of value.
There is no reason in economic terms for derivatives to exist except for the fact that it is a complex methodology to make a profit. Derivatives are sophisticated transactions that are for all practical purposes identical to "churning" in brokerage houses. The only difference is "churning" is illegal. Almost all of the practices associated with the existence and sales of derivatives should be banned.
The best excuse that regulators who basically understand that the whole Derivative Market
is in reality a scam,
(kind of a post Ponzi, Ponzi Scheme, Ponzi himself would be proud of these guys!)
can put forth for not banning them is that it will cause a flight of capital to markets where the
"Scam" will remain legal such as Singapore. So what, the capital is not producing any growth or production anyway. Sure, it would be a short term hit; luxury office spaces vacant,
Ferrari sales would fall, maybe a boutique or two on Rodeo Drive or Fifth Avenue would go under. However, in a few years the millions of jobs created by that same wasted capital going to work would be a happy trade off.
We are near the tipping point where our economy will collapse.
To save our free market economy we must return to a true capitalistic system We do not live in a capitalistic system any more. We live in a financial oligarchy, kind of a Feudal America, where the great concentration of wealth and capital is in the hands of a relatively minuscule number of individuals and a handful of corporations who share their power with some of the governments of the world. (The rest are vassal states)
These sound like ridiculous far fetched conspiracy theories but in point of fact they are true.
We have allowed a few hundred firms and individuals to create a financial system of unparalleled size and unbridled ambition. This group has taken virtual control of all aspects of the economy.
They operate in collusion with government bureaucrats, regulators and politicians to control the economy and central banking systems.
The reason that this system is unsustainable is because there
is not enough capital to continue funding a system that produces nothing
but unrealistic, unearned paper profits and bonuses and commissions
for an elite group of executives and money managers.
The aggregate of these actions is to stifle real growth and real production.
We are at the crossroads. We can return to a system that worked;
the post war era can serve as a model.
Sensible government regulations such as anti-trust and uncomplicated corporate governance
or a future controlled by giant corporate masters and an inefficient and incompetent government
with bureaucrats gone wild in charge.
The disaster in the Gulf of Mexico that unfolded over the past three months will have consequences that will effect our nation, our economic well-being and our people for generations.
That Gulf disaster proved that giant corporations unchecked and layers of inefficient government staffed by inept stooges is not an America that most of us want.
NEXT
New Financial Reform Bill is 2300 pages.
It does not address the Derivative Markets
It does set up a $50 Million a year agency to benefit women and minority borrowers.
Ladies, don't get excited; it looks like you need to be a well connected and wealthy minority or woman to benefit.
Jim McDonough
Manhatan, Kansas
Non Producers
Production of goods and services is essential in any prosperous economy.
Can an economy prosper if it is a service economy only?
The American economy can not. That however is just part of the answer.
The second part of the answer to the question lies in what is considered a service.
Care for patients in a nursing home is an extremely important service
but it has not always enjoyed much prestige or decent remuneration.
Another industry, an altogether different industry, is broadly classified as financial services.
Brokerage firms, hedge funds, investment banks, venture capital firms and
related businesses are all in this very large financial service sector.
All are all very prestigious and the remuneration is much higher than any part of the
American economy. Not even film or sports stars come close to Hedge Fund Managers!
My contention is that the American economy is in danger of collapse
because the financial services sector in most of its many aspects and transactions is no longer stimulating or funding essential services needed for growth in a capitalist society.
Here are the facts to bolster my contention: the money supply is higher than it has ever been
(M1, M2, M3 and MO and all reserve metals in private and public accounts is $50 Trillion)
The Derivative Markets in the aggregate are believed to be $600 Trillion.
Capital Markets are as an aggregate lower than they have been in 20 years as a percentage of the overall economy. Estimates are almost impossible to make but it could be as low as $600 Billion and no more than $2 Trillion. How can this be? More importantly; how could this have happened?
Venture Capital Firms are important and essential. Yet these firms and the pools of capital that they need are not growing. In fact these markets are at best stagnant and in many cases shrinking.
Twenty years ago "Derivatives and Derivative Funds" were a small part of the financial markets.
Perhaps, $1 Trillion tops. They were mostly used in commodity trades for industrial and agricultural uses. Savvy folks hedged against price spikes or bad years. That was fine; the transactions served a purpose and in fact aided real production.
The REAL PROBLEM:
Profit is not production. For the past fifty year the "bean counters" have been castigated but never restrained for practices that emphasized short term profits at the expense of long term growth.
Jobs and economic and social stability were somehow not considered important and no serious government policy fostered any kind of plan or oversight to protect them.
If it had simply been just an omission; the lack of government policy would not have been so bad but
it was countered by policies that fostered and encouraged the formation of hedge funds, offshore funds, investment and brokerage funds, trust funds that all delved into growth via sales and trading of "Derivatives and Derivative Funds".
Special interest groups and lobbies were allowed to write self serving regulations in the few cases when regulations were even written. Few if any regulatory authority over the financial sectors was
ever enforced seriously. The amazing thing about the last 20 years on Wall Street and in Washington
is that a hundred more Barney Franks and Bernard Madoffs did not emerge; no one was paying attention or looking at the long term. The real brains or "players" were busy selling "Derivatives". 100% legal and a license to make huge profits without producing anything of value.
There is no reason in economic terms for derivatives to exist except for the fact that it is a complex methodology to make a profit. Derivatives are sophisticated transactions that are for all practical purposes identical to "churning" in brokerage houses. The only difference is "churning" is illegal. Almost all of the practices associated with the existence and sales of derivatives should be banned.
The best excuse that regulators who basically understand that the whole Derivative Market
is in reality a scam,
(kind of a post Ponzi, Ponzi Scheme, Ponzi himself would be proud of these guys!)
can put forth for not banning them is that it will cause a flight of capital to markets where the
"Scam" will remain legal such as Singapore. So what, the capital is not producing any growth or production anyway. Sure, it would be a short term hit; luxury office spaces vacant,
Ferrari sales would fall, maybe a boutique or two on Rodeo Drive or Fifth Avenue would go under. However, in a few years the millions of jobs created by that same wasted capital going to work would be a happy trade off.
We are near the tipping point where our economy will collapse.
To save our free market economy we must return to a true capitalistic system We do not live in a capitalistic system any more. We live in a financial oligarchy, kind of a Feudal America, where the great concentration of wealth and capital is in the hands of a relatively minuscule number of individuals and a handful of corporations who share their power with some of the governments of the world. (The rest are vassal states)
These sound like ridiculous far fetched conspiracy theories but in point of fact they are true.
We have allowed a few hundred firms and individuals to create a financial system of unparalleled size and unbridled ambition. This group has taken virtual control of all aspects of the economy.
They operate in collusion with government bureaucrats, regulators and politicians to control the economy and central banking systems.
The reason that this system is unsustainable is because there
is not enough capital to continue funding a system that produces nothing
but unrealistic, unearned paper profits and bonuses and commissions
for an elite group of executives and money managers.
The aggregate of these actions is to stifle real growth and real production.
We are at the crossroads. We can return to a system that worked;
the post war era can serve as a model.
Sensible government regulations such as anti-trust and uncomplicated corporate governance
or a future controlled by giant corporate masters and an inefficient and incompetent government
with bureaucrats gone wild in charge.
The disaster in the Gulf of Mexico that unfolded over the past three months will have consequences that will effect our nation, our economic well-being and our people for generations.
That Gulf disaster proved that giant corporations unchecked and layers of inefficient government staffed by inept stooges is not an America that most of us want.
NEXT
New Financial Reform Bill is 2300 pages.
It does not address the Derivative Markets
It does set up a $50 Million a year agency to benefit women and minority borrowers.
Ladies, don't get excited; it looks like you need to be a well connected and wealthy minority or woman to benefit.
Jim McDonough
Manhatan, Kansas
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