Wall Street is Getting More Salacious Than the Tabloids

By David Whitehead
Business Insider Magazine

Our normally arcane financial markets are getting more salacious press these days than Britney Spears. However, I would expect investors to start pulling their hair out before they ceremoniously shave their heads. Pretty soon the $45 trillion teetering on credit default swaps will sound more exciting to average Americans than Mr. Spitzer’s dalliance with a high-cost prostitute (despite what you’ve read elsewhere, high-class is seriously questionable here).

Folks who rarely follow this stuff are now asking difficult questions, which is encouraging. Although this trend is extremely healthy for the long-term health of our financial system, the added transparency is an extraordinary annoyance for those who run it. Industry professionals with a lot of money riding on the markets are selectively anesthetizing their gray matter in a desperate search for good news. Confusion is rampant not because this financial crisis is so tough to figure out but because the people best qualified understand it are scared to identify and critique its root causes in the central banking system. The mainstream press is getting less timid about going deep in their coverage of financial issues, but that is primarily because details normally buried behind the headlines are springing to the surface faster than people can properly analyze them. In fact, the Bear Sterns debacle hit the media like a freight train and now we’re waiting to see what blows up next.

Our current Federal Reserve Chair Ben S. Bernanke has inherited problems his predecessors never dreamed of and so far he is simply putting out fires with no real plan for fixing the long term problems that created this crisis in the first place.

The Fed’s strategy to overhaul the financial regulatory system absurdly calls for the head fox to guard the hen house rather than the team of foxes we currently distinguish as “regulators.” The key flaw with their strategy is the fact the Federal Reserve is primarily a private for-profit central banking system. Its institutional structure has far too many conflicting interests rooted in the internationally controlled banking groups that actually own it. These are the folks who cultivate extraordinary wealth from convulsions in geopolitical and global financial systems they are in a unique position to anticipate. How can a group with an institutional structure like that be trusted to regulate the rest of the financial community when it sorely needs proper checks and balances itself? This is something they have always fought successfully to avoid using financial clout no government institution can touch.

The derivatives markets literally managed to securitize garbage heaps and obtain triple “A” ratings for them! They deceived global investors into believing they were making solid financial investments, while in reality they were buying something no better than junk bonds. Now people like myself are calling their financial advisors to find out if we own any of these toxic mortgage backed securities that might be concealed in our investment programs. I found none in my own IRA, but some of the companies I am invested in bought the stuff, which isn’t comforting.
The damage to the trust required for average citizens who want to invest in Wall Street will take some time to mend. The regulatory changes proposed as of this writing sound like window dressing, yet they bestow a dangerous level of power to the central bankers that created the bubbles that led us down this road in the first place.

The Federal Reserve prefers to work from behind the scenes and I am sure there are powerful people who are not pleased “helicopter” Ben has achieved celebrity status for his well-publicized money drops to deliver financial relief tempered by mounting inflation that is already starting to get noticed.

Does this sound as if the world as we know it is about to end? It does only if you can’t imagine a world without the almighty U.S. Dollar. But despite our ethnocentric allegiance to our institutions, the dollar, like every currency ever conceived, is mortal and potentially finite.
Should the Fed run out of places to beg, borrow and steal from the global economy to keep our currency afloat as the rest of the world casts their greenbacks aside settling on a new reserve currency less burdened by debt, hyperinflation would become unavoidable. I know there are Keyensian types out there who think our internal economic activity is strong enough for us to ride through this. However, if you don’t need bullion or hard industries at home to generate real wealth, then why all the borrowing, deficits and debt that’s gone on for the last 30 years? The new thinking for many economists espouses that old fundamentals no longer matter, but the point is no one in the history of the world has ever sustained an economy built on a foundation of mounting debt. Has anything happened during the last three decades that cancels out the rest of economic history? I doubt it and the fundamentals don’t seem to be going away as everything happening now has been predicted for years. The only surprise for people like me is how long it took for everything to start falling apart. When a friend engaging in offshore investments first alerted to the terminally ill dollar in the mid nineties, I was told the economy would blow out by 2004. Well, it’s 2008 and the snowball is starting to gain size and speed.

Weimer Germany blew out it’s currency printing fiat money to pay war debts, but despite the old photos of people carrying their money in wheel barrels in the early twenties, they managed to borrow enough money from the very enemies whom they owed war reparations for Hitler to launch World War II with extraordinary force 15 years later. I’m not kidding! Read the 1,300 pages of the late Carroll Quigley’s epic “Tragedy and Hope” and your mouth will drop when you read that tidbit among other obscure facts most historians thought you didn’t need to know.

This is the kind of direction global financial markets can take us if left to their own devices unless governments genuinely under the control of their own people and untainted by lobbying muscle have the courage to confront powerful financial institutions and keep them in check. I don’t mean constraining them to the point they can’t be profitable. I mean we need cool heads taking the long view to make sure what they create is in the national interest, not predatory on other sovereign nations and most importantly—sustainable. Unfortunately, our economy, and the global economy for that matter, hasn’t functioned that way in anyone’s living memory. We are at the point where we need to invent something new to rediscover the greatness of our past.
David Whitehead is the Publisher of Business Insider Magazine