Occupy Wall Street Grabs the Headlines

by John M. Curtis
(310) 204-8700

Copyright November 21, 2011
All Rights Reserved.                                         

    Protests around the globe have more to do with paid anarchists than any real understanding of the egregious manipulation leading lifelong consumer advocate and independent presidential candidate Ralph Nader to call American investing “The Wall Street Casino.”  Whether admitted to or not, the house wins and average folks lose, certainly the case today with Wall Street dominated by unregulated hedge and private equity funds.  Every time the market takes a nosedive, clever public relations folks spin yarn about Europe’s debt problems or any other excuse to justify uncontrolled short selling, accounting for whopping hedge and private equity fund profits but eviscerating the long-term investments of ordinary people.  Occupy Wall Street protests around the globe speak volumes about how heavily manipulated stock exchanges do little for small investors praying one day to retire.

            Since the dot-com bubble burst in 2000, Wall Street has been on an unending roller coaster, dominated by unregulated hedge and private equity funds with no commanding or legal authority.  Hedge funds hit the headlines in 1998 with Long Term Capital Management when former Fed Chairman Alan Greenspan arranged a $3.65 billion bailout.  While small by today’s standards, considering that American International Group received over $200 billion, Greenspan’s move irked private investors realizing the Wall Street took care of its own.  When you consider that Congress was debating Gramm, Leach, Bliley financial reform, allowing banks to once again own brokerage houses, it pushed the investment community in the wrong direction.  When former President Bill Clinton tossed out Glass Steagall and signed GLB into law Nov. 12, 1999, it signaled the beginning of the end.

            Ten years later, runaway derivative trading by the nation’s biggest financial institutions caused the most catastrophic economic collapse since the Great Depression.  Whatever past wisdom of Depression era Glass Steagall preventing another major financial panic, it was lost in a heartbeat with GLB.  Nothing changed July 20, 2010 when President Barack Obama signed new financial reform legislation.  Derivative trading has continued unabated, placing every major U.S. financial situation at risk.  It’s ironic t hat the very year Clinton jettisoned Glass Steagall, the European Union created the Eurozone cobbled together its common currency:  The euro.  Twelve years later, Europe enjoys none to the promised prosperity, instead faces bankruptcies of some of its strongest economies.  Wall Street likes to blame sell-offs on Europe’s sovereign debt problems but they know different.

            Wall Street’s latest meltdown taking the Dow Jones Industrial Average down 1,000 points in the last week has less to do with Europe and more to do with unregulated hedge and private equity funds.  As long as short selling remains unchecked, there’s no way to stop the market’s sideways or roller coaster movement.  American businesses can’t count on hiring new employees, or bringing back old ones, when market capitalization takes a dive.  Publicly traded companies, like small investors, rely on growing stock accounts to expand businesses or buy into the consumer economy.  Without more employment, it’s difficult to grow an economy heavily dependent on consumer spending.  Consumer spending starts and ends with employment, something that’s improved over the last few months.  If government regulators can rein-in short selling, the markets and economy can eventually grow.

            Many recent economic figures point toward a sluggish economy, including a Third Quarter growth rate of about 2.0%, not enough for comfort but better than the .4% First Quarter and 1.3% Second Quarter.  Weak job growth, more than anything, keeps unemployment high and deficits mushrooming.  With the so-called bipartisan Supercommittee gridlocked facing a Nov. 23 deadline for more budget cuts, Wall Street gets more heebie-jeebies, triggering sell-offs by hedge and private equity funds.  While a handful of hedge and private equity funds continue to make record profits, average investors take a beating.  Occupy Wall Street, if nothing else, tries to point out that Wall Street’s shenanigans do little to help long-term investors.  Whatever happens in Europe—including the possible collapse of the euro—the U.S. must clean house and fix unbridled short selling.

            Whether the euro collapses or not, the U.S. must mind its own store and promote pro-growth policies inside its sovereign borders.  Controlling short selling by currently unregulated hedge and private equity funds would go a long way in protecting market capitalization of publicly traded companies.  With less short selling and more upward stock market movement, companies would add more jobs, the key to any real and lasting economic recovery.  To keep Occupy Wall Street protesters off the streets, Wall Street needs to demonstrate more responsiveness to ordinary citizens.  If Obama encourages American business to manufacturer and assemble back in the States, companies can begin to shift the manufacturing base from China and to the U.S.  Watching scary market sell-offs should remind all investors that there’s much work to be done in regulating unregulated funds.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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