The growing fraud that is Wall Street
Wednesday, December 17, 2008
In the 1990’s many people said that Wall Street would be democratized by the internet. Cheap internet-based trading would allow people to become day traders in bathrobes, moving stock trading out of the hands of brokers and off the trading floor to our PC. Yet, if we have learned anything since the financial markets collapsed in the fall, it is clear that much of the world of finance and Wall Street is still done in the shadows.
We have now learned about bizarre new financial instruments, and a complete lack of governmental regulation. We learned about Bear Stearns, AIG, collusion between insurance companies and banks and, most recently, about a guy named Madoff, who made off with a bunch of people’s money.
As it comes to light that a greater and greater amount of Wall Street business is built upon fraud and lies, how can we continue to believe the economic theories that have been born of Wall Street?
Economists have claimed for decades that the new world order meant the so called financial, insurance, and real estate (FIRE) industries would be the best generator of jobs in America. We were told that globalization was inevitable and that the FIRE industry could replace the jobs that produced real goods. We were told that certain jobs were expendable, but cheaper imported goods would allow us to afford our children’s college education.
The economists of Wall Street have made protectionism a bad word, hushing all those who would disagree. Instead of expecting the free trade economists to prove their theories, we gave them a free pass and ran headlong into a system that has weakened our country. We were promised that free, unregulated trade would raise the standards of living in other countries, creating markets for American goods. We were told that the new world order would create better jobs for Americans in new, better industries. We were told that the FIRE industries would be the main protected and export industry of the nation.
The proof of economic failure is all around us. We see declining standards of living, a growing gap between the wealthy and the lower-middles class, and losses of employer-provided health care. We have seen a diminished tax base, higher pollution in newly industrialized third-world countries, and an inability to keep lead out of our children’s toys. These growing inequalities and problems demonstrate the real impact of our trade policies. Instead of increased global prosperity, we have witnessed a race to the bottom on wages and benefits.
I am not proposing we erect high walls and turn all the boats away at our shores, but shouldn’t we be asking ourselves if, along with greater regulation of the financial services sector, we should regulate trade? It seems to me free market fundamentalism has failed on both fronts.
Many other countries regulate trade, some of them erecting high barriers to protect their industries and create export economies. Others, like China, have been bringing down barriers, but have continued to regulate trade, to make sure jobs and a domestic market is created.
For too long we have taken economists at their word, and have been admonished whenever regulated trade is mentioned. It seems to me their track record isn’t so good. Isn’t it time to listen to the unconventional wisdom and hear from a much broader array of economists, including those advocating economic theories often considered taboo?
