Curbing the Wall Street Addiction

Wall Street has careened like a drunk the last few weeks, with massive swings in reaction to epidemics of anxiety. While most of the financial world prays that the market has bottomed, another kind of bottoming out is necessary. And that is our own co-dependence with the addict that Wall Street has become.

The co-dependent person enables an addiction by looking the other way, by justifying derelict behaviors, by rationalizing that it will get better, and by taking care of the addict when they bottom. This is, in many ways, what the US government has done with the recent bailouts; we have become even more co-dependent. "Thank God!" we can almost hear the financial titans cry, "We do not have to pay the full consequences and can go back to the game."

The underlying addiction comes from Wall Street's ability to make extraordinary amounts of money in the financial market casino without adding real underlying value. It fuels the gambling instinct for the big win, only unlike gambling, the inside players often act as both the House and the gambler.

The billions in Wall Street bonuses have come from somewhere and it is not primarily because they are adding value to the real economy. What the titans of Wall Street have gotten very good at is playing the insider's game and skimming the cream off the top of the milk. The vast sums of money that are harvested by daytraders, options brokers, hedge funds, and the dozens of financial rackets are, in the final analysis, mostly taking money from the legitimate wealth-building that companies and hard-working citizens do.

In Vegas, the house always wins in the end because the odds are on their side. They manage the game and profit handsomely. Similarly, the titans of Wall Street make their money by manipulating the game -- by injecting billions to boost stock prices and then cashing out their position. By betting against banks and then ganging up on their stock. By getting a whiff of an earnings announcement before it happens and buying fast. By getting early shares of a company before it goes public, allowing them to make tens of millions on the first day. Just this week, billions were made by someone with the stock market rally on Monday and subsequent sell-off. Market volatility is a game that allows insiders to take money that has been created in the real economy by real workers doing real jobs.

How else can we account for the billions in bonuses for companies that don't produce actual tangible products? To use a metaphor favored by investment advisor Catherine Austin Fitts, the titans of Wall Street act as a tapeworm in the digestive tract of America, taking nutrition from the rest of us.

The challenge is what to do about it. As we've seen, governments around the world rush to defend the markets, protect the banks, and reinforce the largest financial players to prevent collapse when a bender has gotten out of control. Collapse would, in essence, be too damaging for the rest of us because we've becoming dependent on Wall Street as financial middlemen. We thus can't let major players or the system as a whole go belly up.

Given that, we need to take very concrete measures to reduce the addict's ability to take money from the real economy or to engage in the speculative gambling that ultimately steals from people's retirements and from solid companies. We have to undermine Wall Street's ability to make money from the game while simultaneously ensuring that the companies and individuals who are creating the underlying value thrive. In other words, we need to starve the tapeworm and bring more of the nutrition into the actual economy.

The most important thing to begin to curb the addictive behavior is a barrier to excess speculation that funds the bailouts necessary to fix the current problems. The clearest, easiest and wisest way to do this has been explained by Thom Hartmann here:

It's called a STET tax and it could be as little as a .25% tax on securities exchanges -- something America did for 52 years and which Europe still does. For the average long-term investor, the tax is negligible. For the average American, it will not touch them. For those taking excessive profits by gaming the system, it becomes a small barrier to excessive speculation. This moves the government into the role of the House, profiting from the gambling (estimated at $150B/yr) and curbing some of the most egregious excesses. The end result is a slowing of the drunken lurching of the markets, more incentive to buy and hold, and the generation of funds to cover the bailout, rather than raising taxes on average citizens or borrowing from overseas. It's brilliantly simple.

Other curbs on Wall Street excess profit-taking and risk-taking will be necessary and they'll need to be done in a way that increases the available finances for good companies and ethical citizens. We need to starve the tapeworm while ensuring that the real nutrition gets to its proper destination. America simply cannot allow Wall Street addicts to take billions in profit, without adding real value, while starving the finances of hardworking, middle-class people across this country.

Comments

[PaulL2]

What about a capital gains tax that varies inversely with the time the equity is held, but more radically that the current "short" and "long" term capital gains? Something along the line of "your current tax bracket plus a 20% penalty" for day traders and option traders, these mostly being speculators, down to no capital gains tax at all for stocks held for 5 years or more (a better deal as a retirement fund than a 401k which is ultimately taxed as income). The biggest problem I see with the markets is the impossible mix of 401k's and other long term holders attempting to succeed in a market rife with short-term gamers. This is the salient difference between now and 1929 -- almost everyone is "in the market" most of the time, because the average 401k holder cannot possibly have the knowledge or time to actively manage his portfolio. I am not saying go back to the old lifetime employment with one company and a defined benefit pension -- the world is too dynamic for that. But we have to reform the market in order to let the 401k's and similar vehicles (college funds, etc.) do their work.

[anonymous84]

A tax on every transaction would actually increase volatility in the equity markets. Market makers and key players in the market are currently on the sideline. Thus the increased volatility. Market makers are traders that buy and sell equities and make a tiny spread. A tax would reduce the amount of money allocated for market making and would increase liquidity premiums. In the end it would reduce the amount of money in the equity markets which would be bad for corporations.

[proreality]

the "Blue dog" democratic caucus tried to get this put into the bail out bill and were completely undermined and chided by the special interests on both sides of the isle. A 1% tax could go allot further. Let the speculators explain why they shouldn't pay a penny on every dollar they move around. Especially when it could be used to eliminate income tax for labor. The tax system was never meant to tax labor, taxing labor was actually thought of as repugnant by the founding fathers and the tax system was established to profit from capitol gains and tariffs. It is just another example of the American people taking a back seat to the monied interests in Washington. The people of the United States ARE NOT represented by our government it has become nothing more than a fascist system.

Fascism: Extreme right wing form of government that favors corporate rights and consolidation of power over the rights of the people.

[johnsopinion]

THANK YOU! THANK YOU! THANK YOU!

[sposton]

Financial system ought to be a reflection of the real economy. Once you start creating wealth by shuffling paper that has little or no connection with real economy you are heading toward the iceberg. When will they change? Only when you threaten them with extinction, by replacing them with socialism. Short of that they don't register us as a factor except as an abstraction they can freely screw as they wish. We can either threaten them with a big stick or hand them a jar of Vaseline. ;-)

[joebhed]

Stephen,
This will undoubtedly become one of the meager capitalist solutions to "fund" our economic reconstruction.
While I agree that it will become a cost of doing business, well, it will be a cost of doing business.

This is what was meant by the Baron Rothchild when he said: ""Permit me to create and control the nation's monies and I care not who makes its laws.""

So, Stephen, absolutely. Will do.
But again.
They care not.

If you want them to care, then do not permit them to create and control the nation's money.

Restore that power and permission from whence it came when given to the private money-creating cabal known as the Federal Reserve bankers.

There's nothing "federal" about them.

All private bankers.
Not part of the government.
They make their own rules and they regulate themselves.

You can see how well that is going.

Implement the Chicago Plan.
Public credits.
Debt-free money.
100 percent reserve banking.

Just say NO to the Rothchilds.
Monetary transformation NOW.

[MourningDude]

Why stop at 0.25%? Why not 25%? That would encourage people to buy and hold even longer, and stabilize the markets even more.

It would help to insulate the markets from harmful attempts to gauge the true "value" of stocks, and give a strong incentive for stocks to continue bubbling skyward indefinitely.

That's the goal, right?

[Aaror]

Because a .25% transaction tax will discourage day trading and speculation, while not discouraging an investor from selling an investment at the right time, as a 25% tax would. A .25% tax hurts the day traders and the folks who send those e-mails saying "penny stock zero is about to double in value, buy now!" It doesn't affect the investor who buys a stock and holds it for 5 or 20 years (i.e. a smart investor). It would reduce volatility, irrational sell offs and purchases, and bubbles, without affecting the market's ability to accurately price stocks.
Of course, I am assuming this was a legitimate question, and you are not just a day trader sending e-mail lies about stocks to buy on the bounce, who is afraid this will hurt your livelihood...

[DuganS1]

A .25% fee is not enough to discourage day trading or speculation. Plus day trading and speculation in equity markets is not a problem anyway. It actually can be a very good thing as it adds liquidity to the market. Last, holding a stock for 5 to 20 years is not the sign of a smart investors. It's usually a sign of a very bad one.