Stock Market’s Biggest Threat: A Fair & Just Capitalistic Financial System

We have a socialist financial system where the big boys bail themselves out and skim from everyone else. And some want to fix it.

The Marten’s highlighted the Senate Banking Committee’s attack on wall street this week. And it is worth reading below. These include many of the issues I repeatedly bring up about our system… except we have never had Representatives with the power and will to do something about it.

The bottom line for stock investors is that we have been riding on the coat tails of policies designed to enrich the rich via the stock and bond markets. That process is going to reverse soon.

Dems Provide Brutal Assessment of Wall Street at Senate Banking Hearing


Yesterday’s Senate Banking Committee hearing to assess if the wild trading in meme stocks like GameStop and others requires new regulations on Wall Street turned into an overall assessment that Wall Street’s capital allocation system is broken and the main function of Wall Street today is a wealth transfer system for the rich. The Chair of the Committee, Senator Sherrod Brown (D-OH) summed it up as follows: (Read his full, enlightening remarks here.)

We’ve seen Wall Street treat the markets as a game for decades – a game they always win, at the expense of pretty much everyone else. Wall Street has never been friendly to the little guy. Surely this time is no different. Yes, some regular people have had success. But fundamentally, the system is set up to funnel more wealth to the already-wealthy. Just like in Las Vegas, the House always wins.”

Senator Elizabeth Warren sized up the current structure of Wall Street like this: “It’s riddled with conflicts of interest that allow the giants to win every single time.” Warren went on to say that Wall Street “is supposed to be about capital formation, to creating long-term value for companies, so they can grow and create jobs. This is good for the American economy and American families. But when big sharks like Citadel and Robinhood come out ahead no matter what happens, and when the information they gather isn’t disclosed, and when it’s secret how that information is used, it’s easier for these giants to skim off the top at the expense of small investors and working families.”

Senator Jon Ossoff, the newly-elected 34-year old Democrat from Georgia, demonstrated that he has been paying close attention to how things play out between the Federal Reserve and Wall Street. Ossoff said that in the American Rescue Plan that was passed by the Senate on Saturday, “unlike traditional monetary expansion which subsidizes investment banks and unlike other recent fiscal measures that have subsidized corporations and wealth donors, zero percent of the stimulus checks and tax credits in this bill goes to the top one percent.”

Ossoff asked a witness on the panel, Rachel Robasciotti, the founder and CEO of Adasina Social Capital, this: “Given that the bottom 50 percent of American households by wealth possess just 1 percent of total national wealth held in the stock market, what in your view are the benefits of economic policy that gets cash directly to low-wealth households by fiscal measures, versus economic policy that adds liquidity to financial markets via the banking sector like traditional monetary policy?”

Robasciotti answered: “When you give to the kind of people who come from the kind of background that I have, they’re more likely to spend it. We learned about this in economic textbooks as the marginal propensity to consume. But it’s just true that if you give money to those who are more in need, they’re going to be more likely to spend it and circulate it throughout the economy. And so it doesn’t just help them, it’s not just something we want to do to help the vulnerable, it’s actually something that creates a multiplier effect throughout the entire economy. So I believe it just makes good economic sense.”

Ossoff then tackled the Federal Reserve’s perpetual money spigot to Wall Street, asking Robasciotti this: “And what in your view are the costs, Ms. Robasciotti, of economic stimulus, like traditional monetary expansion, which adds liquidity to financial markets by allowing investment banks to access credit at extraordinarily low rates or just transfers cash to financial institutions’ balance sheets via processes like quantitative easing?”

Robasciotti responded: “Those who are doing well at this point with their outsized gains, particularly during the pandemic, don’t need any more help. What it actually does is just sequesters that money in the hands of those who are most wealthy and aren’t going to put it back necessarily in the economy. You know we had that argument of trickle-down economics and we can kind of see from where we all are that that’s not actually what happened.”

Read the Marten’s whole post here: 10 March 2021

Michael Bond: I can not imagine a greater threat to the wealth transfer system known as the US financial markets than fairness and justice and the return to an efficient allocation of capital. The Dems only have 2 years and they appear to be working fast.

We are talking about two forces here. Reduced financial market support and increased economic support. The increased economic support also is raising financial risk because for years fiscal braking kept inflation low, now with real economic stimulus creating real economic growth it will create higher interest rates.

The Fed will not allow this assault on the financial system – fair interest rates – so they will print and suppress and create a nasty feedback loop. They already have.

The other side will begin to push hard for austerity for the 90% especially if the stock market corrects blaming spending on the debt. But as pointed out, they have ignored the trillions printed out of thin air for the financial bailouts.

TSP Smart & Vanguard Smart Investor serves serious and reluctant investors

Categories: Perspectives