Can we afford to mess with Wall Street? Isn’t it like the tick tock heartbeat that keeps our Capitalist economies alive? I picture an endless cycle of regulatory action and Wall Street vengeance. The whole idea of an index of economic health that is built around putting down a bet on whether a company or commodity will turn a profit strikes me as a ridiculously unstable structure on which to base an economy or my retirement income. However that is the system we have.
As the Industrial Age moves on to distant corners (from us) of the globe the Stock Market has experienced ever more volatility and is less and less under our control. American companies do not have factories in America, they don’t pay taxes in America, but they still hold places on the American Stock Exchange (and other Stock Exchanges). And, although for many years our Stock Market pretty much set the pace around the world that is no longer as true. There are Stock Markets in a number of countries that can send shock waves through ours.
The “creative” way that the stock brokerage companies in America met the changes in the industrial scene in America should have been and probably were illegal. However, even if they were not sure about whether or not what they were doing was illegal they knew it was risky. Perhaps it was not illegal because no one ever actually thought of doing something as stupid as bundling up bad mortgages with good mortgages and rating the whole bundle according to the best mortgages in the bundle. What is clear is that someone at these stock brokerages knew that these bundles reeked and that there might/would be financial repercussions. This does not even touch the illegality of the banks and mortgage companies that offered these mortgages in the first place.
Our economy obviously can’t take too much of this kind of “black hat” creativity. We watched in horror as banks foreclosed on house after house forcing Americans to scramble for new living arrangements and sometimes creating whole neighborhoods of empty houses. The Stock Market took a nose dive. My pension (and those of many other Americans) took a nose dive. Employment took that same dive. Without the TARP I don’t think we would have pulled up before we hit rock bottom. Without the stimulus we may have already had the revolution we could still be headed for.
It stands to reason that the argument that we might have to regulate Wall Street, make some rules about what it is legal to do and what it is not legal to do has gained lots of traction. This is what many Americans like about Elizabeth Warren and Bernie Sanders. We are justifiably angry at greedy hedge fund operators and mortgage companies for almost destroying the American economy and we don’t just want reform, we want punishment. Hillary Clinton has also said that some regulation is necessary although she does not hook into people’s anger and does not seem to want to tar and feather the perpetrators and run them out of the finance business. Mostly we would be happy if they had to give us back what we lost as a result of their adventures in edgy economics.
But as for the future, for me, and perhaps for you, there are questions. First of all, since no one could have foreseen the bundling and sale of those stinky mortgages (hold your nose) can we ever foresee every new ploy these people, who must make money or die, can create? Second, can the American Stock Market provide the secure investment structure and the secure economic base America needs any more at all? How would America function without a Stock Market? Perhaps some economists could discuss this among themselves and allow us to listen in.
Can we overregulate the Stock Market and crash it? How do we choose the exact regulations that will protect us from illegal profiteering and yet will allow the Stock Market enough room to keep ticking along? If the SEC is unable to oversee the market can we whip it into shape without putting a straitjacket on the market?
Although I hate what brokerage firms did to us to attempt to make money from bad mortgages, I go back to my very first question – can we afford to mess with Wall Street? And if so, how much? I think we are afraid, we are very afraid, because we are not sure about the fragility of our economy and the entire global economy. I have a gut feeling that we should buck up the economy before we decide about large scale regulation of the Stock Market or even perhaps the “Big Banks” despite our very real anger and our desire to send a tough message through punishment. I also have a gut feeling that effective oversight is important to stop truly risky financial strategies that could still be invented by both the Stock Market and the banks. Everyone needs to keep an eye on our pressure cooker financial crucible that is the Stock Market and the banks.
So I am feeling that I need more information about exactly what regulation would look like and what the effects of any regulation or various regulatory measures might be. This is a time when we need to look to our economists. We also need to remember that economics is hardly an exact science and that economists have differing points of view on these matters which may be influenced by famous economists, or by their politics, or both. What we decide, even after input from the field, will still require a final judgment on the part of each of us. Please you economics geeks, use simple language that we can all understand and perhaps some scenarios like the ones they used in the film The Big Short to illustrate your points.
By Nancy Brisson
(Disclaimer: you may or may not believe this but I wrote this on Saturday, February 6th 2016. When I listened to Meet the Press on Sunday and to the discussion of these matters between Hillary Clinton and Chuck Todd it was just serendipity that I had just written this post. The only change I made to this post after hearing their conversation was to add this note.)