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Stephen H. Dinan Headshot

Curbing the Wall Street Addiction

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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.