A Suggestion to Help End Corruption
Written By: Cal Burgess | Retirement Servicing Group
Over the last few years, time and time again, the true nature of Wall Street’s corruption has been in the spotlight. The result has been billions of dollars in losses, fines to the perpetrators, and in some cases, a prison sentence. Unfortunately, the end result is the same: Wall Street adamantly opposes any type of regulation needed to protect the nation from another financial collapse. Attempts to regulate the securities sector is often misunderstood as a deterrent to future growth. This is not the case. Truth is, a regulated financial sector can encourage growth, while ensuring that any future market will be rid of a self-serving, corrupt market environment.
Regulation, if properly implemented, can simultaneously protect the interests of the investor, while encouraging fast and steady growth in a natural way; free from self-manipulated interests. Regulation should not restrict growth, but rather handcuff blatant corruption. The trick is to focus on growth while making sure the house of cards won’t tumble with any future market downturns. After all, trillions of dollars have been spent in order to offset most of the volatility this country has seen since the Great depression. It has only been four years since the fall of Lehman Brothers, and yet the Federal Government has announced the fifth round of the Federal Stimulus, Quantitative Easement III (QEIII), which will inject $85 billion per month until otherwise announced.
It’s no secret this was able to happen over 30-plus years of deregulation in regards to the financial sector. Furthermore, if those regulations were never undone, the likelihood that something of this magnitude would be corrected, would be nil. The only way to make the market harmonious again is to ensure the financial sector cannot be manipulated moving forward.
Today, too many financial products, designed solely to deceive investors, exist. The deception is fueled by the desire of greater profits, all while regulators turn a blind eye. A good example is the Collateralized Debt Obligations (CDOs), which flooded the marketplace with toxic assets. When examined, it becomes crystal clear as to why we need to protect the country from a system that refuses to be held accountable, while still believing in a self-regulation environment, free from the long arm of the law. These derivatives required a complete manipulation of the housing market, the securities industries, and the insurance industry (the securities side), which are largely controlled by only a few financial giants. Many Wall Street firms were selling these CDOs as the next best thing, while simultaneously placing bets that they would fail with other financial icons such as AIG. When those CDOs defaulted, AIG was left insolvent and unable to pay out the manipulated bets. The rest is history.
Why did big banks do this? To collect the profits on the front end, while ensuring their interests were covered on the back end, ultimately leaving the investor holding the bag with a huge hole in the bottom. The financial corruption, that was involved in order to allow this to happen, is arguably one of the worst in world history. So why has nothing been done to ensure this NEVER happens again?
To be fair, there are several financial planners out there who have the utmost integrity in regards to their client’s interests. Additionally, there are many financial institutions that were not responsible for what happened in 2008. Instead, they were mere victims of circumstance. With that said, many of these firms acted maliciously, and still continue to do so. The only way to stop this is to change the rules of the game.
As far as ideas go, one would be to keep a distance between the financial sectors, meaning any new financial products or services that are offered, cannot be sold in conjunction with other industries lacking relevance. For example, let’s assume a new financial breakthrough came to fruition through research and development of several companies in the energy field. In this scenario, we’ll assume a breakthrough of a clean-burning and inexpensive alternative for coal, which created thousands of jobs and brought in trillions of dollars in revenue. Since this breakthrough occurred because of the energy sector, the sales of securities would be kept separate from any other services such as the mortgage sector, or any other irrelevant or unassociated financial sector. This would prohibit any companies outside of energy services to be bundled within financial vehicles such as mutual funds or CDOs. Demand would continue to for the energy sector without directly influencing other financial sectors. Therefore, if the energy sector took a big hit, it would not bring the whole house down. This is just one alternative that could ensure all future market corrections would be of a natural manner, in turn, helping eliminate a corrupted system.
Will these types of needed changes ever occur? That remains to be seen. We can’t undo what has already been done, but we can make sure the same mistakes never happen again. If this system of “self-regulation” continues with a blind eye, what potential disasters lie ahead for future generations? Isn’t the bigger crime that we do nothing?