How Wall Street became a Soviet Sausage Factory

It’s the greatest financial con in history… and no one is talking about it.

I’m actually surprised more people aren’t talking about a revolution.

We’ve seen surprising level of bipartisan, across-the-political spectrum support for the crisis response.

And that’s surprising given we’re in the middle of one of the greatest wealth transfers in human history!

Think about what’s going on for a moment.

The US Fed is printing money and pumping it into financial markets.

This is what they did during the GFC, but the current bazooka bonanza is making the GFC-response look conservative and prudish.

And think about what all this money does. It supports the prices of financial assets. It keeps stocks, bonds, everything higher than they otherwise would have been.

As one wag noted, when the Fed started buying corporate junk bonds, Wall Street had effectively become a Soviet Sausage Factory.

That is, rather than the iconic poster-boy of rugged capitalism, the stock market had become an organ of the state, with prices controlled (and guaranteed!) by the state.

The Fed has effectively turned the share market into a one-way bet.

If prices go up, you win. If they collapse, the taxpayer loses.

How good is that?

And now, the standard wisdom on Wall Street is just “buy whatever the Fed is buying.”

Why aren’t people angrier about this?

I’ll tell you why. They don’t have jobs. In America, when you lose your job you often lose your health insurance, which, as we face one of the most epic health crises in human history, kinda sucks.

Getting angry about the complex machinations of the share market is a luxury that only people like me, with independent wealth and time on their hands, can enjoy.

If you’re out of a job, all you want is for things to go back to ‘normal’. You just want to be able to work so you can keep paying your bills.

And when the financial smarty-pants tell you that the best way to get you back in a job is to throw crap-cans of money into the crocodile pit of financial speculation, who are you to argue.

You don’t know any better.

And nobody knows any better. It takes time to figure it out.

It was the same story with the GFC and the money printing that followed that. By the time we realised that the overwhelming impact of money printing was to juice financial assets, it was all but over.

That’s the nature of live experiments.

But I can guarantee you this: we wouldn’t be running live experiments with any measures that threatened the bonuses of Wall Street execs.

Funny how these “experiments” always seem to make the rich richer.

And I worry that it’s going to play out all over again.

By the time we look back and realise that our crisis response only made the obscenely wealthy more wealthy, it will be a lesson in ancient history.

The political leaders involved will have moved on (to plumb consulting jobs or the boards of global hedge funds). The Wall Street execs will have retired to their fortified islands.

There will be no one left to get angry at.

And the revolution will always be next year.

JG