Monday, March 9, 2009

The Real Issue with Wall Street (and your 401K)


On HuffPuff, Ann Pettitfor writes about Wall Street holding the U.S. for ransom.

JHK suggests something similar regarding the "too big to fail" myth.

The "ahha" moment I had this weekend whilst walking the mutt on another warm but blustery Downtown Dallas day, was what Wall Street's deeper issue is, beyond the credit default swaps, the ARM loans, greed, etc. All of the companies on the DOW or S&P 500 are huge corporations. They can't physically or economically get any bigger, which is what Wall Street, investors, and your 401K demand, so in turn, they all need to, and are currently shrinking (my publicly traded company included - love those stock options!)

This is the problem with growth. It was touched upon on this week's Bill Maher show with guest Cory Booker. Except that nobody really put 2 and 2 together to realize that there are different types of growth. I have mentioned exhaustively qualitative over quantitative models of growth, but I also touched upon it here:
Let me be the first to say (with thoughts for the other side of this bottoming), that instead of saving dinosaurs, how about we start thinking about saving that money to help startups on the other side of this bottoming that will be smaller, nimble, and more able to meet the needs of the 21st century.
Harvard economist Howard Glaeser echoed my sentiment:
That is how innovation works: small companies competing like crazy and trying out new things. Across cities, there is a strong connection between an abundance of small firms and local growth. The last thing that the government should be doing is propping up big declining firms. Real innovations are far more likely to come from someone’s garage, which is where Chester Carlson came up with the Xerox machine during the Great Depression.
The advantage of Wall Street and Globalization (and I'm one to point out its failings as well) is to deliver capital to companies in need of it for their own growth and economic development for all of us. Nay, this is the POINT.

Instead, it has devolved into a guessing game of who is gonna buy out whom, who will report the best 4Q sales figures, or simply who is the best at hiding their illegal ponzi schemes. Another dinosaur, a construct built entirely to pick the horse that will be standing at the end when only the biggest corporate fish is left. What then? How will our 401K improve at that point?

Well, we're essentially there already. We know that in order to maintain "growth" figures, that these corporations can now only cut costs while trying to provide the same or similar product, which has had disastrous effects on the health of our economies and our physical health.

Wall Street to have a real purpose and contribute to the rebuilding of a real economy is to find a way to deliver the engine of capital that only they can provide to the innovators of the 21st century, the inventors, the biologists, the "green" technicians.

Only then will your 401K begin to shed its sickly sallow look.