Comparative Gems

Tuesday, August 30, 2011

The Evolution of America's Economic Tragedy

The private sector can do a lot of good, but it also can do a lot of bad.



Over generations, it has in subtle ways "nationalized" the economy's savings and investment stream into Wall Street in highly centralizing ways. This process should have been prevented but wasn't and has done horrible damage. Currently, it is expanding its insidious patterns. It is among THE most important causes of slumerica that shockingly characterizes thousands of medium and smaller towns across the U.S.



True diversification of investment resides not in pooling a nation's savings into one locality, Wall Street, but in retaining it at the state, local and regional level. In so doing, it disperses investments and wealth across the nation the way some foreign economies have done very successfully.



The "nationalization" and concentration of the savings and investment stream started already in the 19th century when the Dow Index got off the ground in the 1880s. The first nationwide newspaper, the Wall Street Journal, followed it synergistically. In effect, it directly and/or indirectly, peddled stock sales to soak up the national savings, pensions, etc. into one locality, the New York stock exchange.



The simultaneous emergence of what would become the world's largest brokerage firm, Merrill Lynch, also synergistically abetted this process. In turn, it was followed by the formation of the Federal Reserve System in 1913.



Investment banks started to feed voraciously collecting the national savings and investment into New York. Both, the Fed and investment banks also abetted synergistically the centralization and "nationalization" of savings and investment into one venue and into the hands of a few. Over the long term, this process aggravated the disparity of the super-rich becoming dramatically wealthier relative to the net worth of most people.



Lots of propaganda, sales techniques, marketing manipulations and other media actions added fuel and sustenance for forging the private sector "nationalization" of the savings/investment into Wall Street. War financing and government financing, in general, also abetted it.



Neglected in all of this was the priority of the interest and well being of the people who were conditioned--irony of ironies--to view their own economic benefits to reside in the highly collectivization of the national savings and investment into one venue, New York. Over the decades, they became accustomed to viewing the expanding actions of Wall Street and the growth of the Dow Index as indications of their own economic fortunes. Having allowed their money to flow into Wall Street, their emotions necessarily became intensely fixated on the Dow and all other indices. It became prestigious to own shares on Wall Street that ironically caused what should be termed slumerica. Daily trading volume exploded from about 18 million in 1970 to several billions in recent years.



All along, geographic distances minimized knowledge that should be accessible to the ordinary savers and investors; opaque accessibility to information and all around far less transparency than would exist in state, regional and local investments. There, the saver would far more clearly and rapidly see the results of his/her own savings and investments.



Above all the savings flowed into a most asymmetric knowledge market, the NY Stock Exchange, where it was subject to maximizing profiteering, abuse, exploitation, unbelievable giant corruption and theft and severe and relentless and long-lasting mal-investments in which the millions who partook had little or no choice.



Meanwhile, lots of prestige was generated for those investing and partaking in the NYSE, particularly after Merrill Lynch started to bring Wall Street to Main Street after World War II when it literally hired trucks to sell stocks to the masses on Main Street.



The New York Federal Reserve District Bank, all along, significantly overshadowed all other federal district banks. It cemented the evolving incestuous, cronyistic and exploitative relationship between Wall Street and monetary policy.



The crowning evolution in the last 30 odd years of this horrible saga is the development of the hedge funds and private equity firms. These could only have developed and very rapidly make billions for their founders through destructive ventures AFTER this tragic historical evolution of the private sector "nationalization" of the savings/investment had been successfully achieved. The roaring stock market of the 1990s and the dot.com collapse of 2000 as well as the subprime mess and associated financial engineering could only have occurred to such a severe degree due to the historical evolution of the private sector "nationalizing" savings and investments into one venue.



The results of this giant economic historical process are strewn across the nation not just in the squalid conditions of the medium and smaller towns but also in the chain fast food outlets, chain hotels, chain restaurants and chain businesses when the money was re-injected into the economy from Wall Street. In turn, this prevented and/or demolished nearly all family owned businesses. Beyond that, it also meant that many people put their savings/investment money into ventures that are not very productive. They focused on New York and not on state, local and regional matters. Too often--again irony of ironies--they tried to protect themselves from all the consequences of the Fed's monetary policy and Wall Street and its bailouts and associated inflation instead of using their money locally and regionally for immediate and very visible improvements. Paradoxically, financial advisors over the decades have given advice to their clients on how to protect themselves from the combined but subtle consequences of what the financial industry and the Fed and Wall Street themselves have caused! What a vicious cycle, sad to say.



In the end, the bankruptcy of Merrill Lynch poignantly caused by its heavy and corrupt participation in the subprime mess, compounded slumerica, which is the physical testimony of Wall Street's generations-long mischief. Such a massive historical tragedy cannot easily be matched. In its wake is the current difficulty to restart economic growth since pensions funds; private investments, etc. have not yet recovered from the crash of 2000, not to speak at all from de-leveraging the horrible subprime debts.



The final coup de grace to the well being of Americans is the destructive current push on part of Wall Street to invest abroad even more instead of domestically where it is most needed. Decentralization of Wall Street is the only way to start a much-needed U.S. economic miracle.