Stuff Yaron Finds Interesting

Technology, Politics, Food, Finance, etc.

Some examples of how Wall Street steals money

There is this idea in America that winners should be rewarded and that the rich are winners. And since the bankers on Wall Street are rich they must therefore be winners. But this is a lie. The bankers in this country aren't winners. They are simply the people who managed to leverage their cash into taking control of our government and using it as their own personal piggy bank and get out of jail free card. I realize this rehtoric sounds extreme but if you read Matt Taibbi's latest article in RollingStone magazine I think you'll finally begin to understand some of the mechanisms of how Wall Street steals from everyone else to make their profits.

2 Responses to Some examples of how Wall Street steals money

  1. Julien Couvreur says:

    The question is whether these special bank privileges as a result of government are avoidable bugs, unavoidable bugs or by design.
    My own conclusion is a mix of 2 and 3.
    Government has incentives to control money and banking for its own benefit (taxation, inflation for warfare and welfare, and resulting political power). Banks have incentives to play along (buy government treasuries, support the cartel formed around the central bank by occasionally helping each others, controlling legislation to exclude new entrants), so they can keep their favored position (whoever gets freshly inflated money first has an automatic profit since prices haven’t adjusted yet). This is a symbiosis.
    The only way to avoid this is to separate state and currency, and treating banks like normal businesses (which have to serve and innovate to keep customers) and treating currency like a normal good (which can be provided competitively).
    The root of the problem is political power, which is not only immoral (we don’t accept such force in our daily lives), ineffective (very little accountability for wasted resources and frauds), and dangerous (breeds culture of dependency, paternalism, forced uniformity, conflict). Even if I cannot convince you of this in general, at least consider the option of leaving government out of currency. The record of the Fed is terrible, regulations create corruption and special privilege, and regulators set up a system which is harmful to society (bailouts and attempts to manage risk combine to create moral hazard and increase irresponsible risk-taking).

    If you have time, I recommend George Selgin and Joseph Salerno for historical and theoretical analysis of money. They have good papers and presentations. Mises, Rothbard for heavier reading.

    • Administrator says:

      In a sense I think the situation with Wall Street is quite simple and its resolution doesn’t involve any deep thinking on monetary policy. What Wall Street is doing is called ‘theft by deception’. They lie about the products they are selling (e.g. telling home buyers they qualify for mortgages that they can’t pay, telling bond purchasers that bonds are high quality when they aren’t, telling financial vehicle purchasers that the financial company believes in a product that they are actively betting against, tetc.) and in so doing make huge profits. Because Wall Street has near absolute control of the government they know that they will either be charged with nothing (this is one of the more grotesque examples) or will pay fines that are so small in terms of the profit they made that they don’t matter. I don’t care what form of monetary policy one believes in, none of them can function in a situation where one entity has such a monopoly on power that they can commit fraud at will.

      Personally I think the most interesting questions isn’t who should control the money supply. To me the most interesting question is how to structure government to prevent accretion of power. As Schneier talks about in Liars and Outliers any time there is a large aggregation of power the rewards for corruption (or as he calls it, defection) become so overwhelming that it inevitably occurs on a systemic scale. So this argues that the first thing one must do to produce a more just society is to prevent centralization of power. To me this really argues that one must not have a hierarchical system of government. It also argues for subsidiarity and a populace that is committed to enforcing subsidiarity. But in practical terms I think it means that countries the size of the U.S. are inherently corrupt and as a rule must not be allowed. But of course the counter to this is that being a smaller country when there are larger countries means being at the mercy of the larger countries’ military might. So this isn’t a simple situation.

      But regardless, no matter what one believes about government, a purely parasitic relationship like Wall Street’s relationship to the world is wrong. And it’s repair won’t come from changing monetary policy. It will come only when we can figure out how to break up the accretions of power in our society. This means capping the size/wealth of Corporations so that they can never form a systemic threat. It means capping the size of personal wealth so that no single individual (I’m especially thinking of Bill Gates) is allowed to override the view and vision of millions simply because of his wealth. And it means figuring out how to structure government so that it can provide services we desperately need (e.g. good regulation to ensure a fair marketplace, emergency services, etc.) while not turning into another level of power for the 0.01%. I don’t have the magical solutions to any of this and I doubt any meaningful reform will come without some form of mass revolt but given how dire the situation is becoming in the U.S. (e.g. in terms of personal debt, lack of medical care, lack of employment, lack of stability, massive theft by the parasitic class, not to mention the key role the U.S. is playing in prevent any meaningful redress of global warming) the probability of revolt rises closer to 100% every day.

      The sad part is that the revolt is likely to be the same stupid violent nonsense that never works anywhere. Violence, to be effective, inherently requires hierarchy to maximally direct force. So violent revolutions are inherently hierarchical revolutions and so put us right back where we started. From the Russian to the French to the American revolution the only thing that really changed was who was on the top, not the structure or function of society. But Americans have been so trained in the logic of violence that it will take a miracle to help them understand the trap hidden in that violence. Still, there is hope. The civil rights movement, for example, was largely non-violent. Of course it was largely ineffective. We might have a black president but even a quick study of say the Jim Crow era or our modern era shows how no meaningful movement was made in civil rights. So maybe that’s a bad example.

Leave a Reply

Your email address will not be published. Required fields are marked *