CHAPTER 14
WHAT ABOUT MY. . .?
A confidence trick or confidence game…is an attempt to defraud a person or group by gaining their confidence. The victim is known as the mark, the trickster is called a confidence man, con man, confidence trickster, or con artist, and any accomplices are known as shills. Confidence men exploit human characteristics such as greed and dishonesty, and have victimized individuals from all walks of life.
wikipedia, “confidence trick”
In my experience, the first reaction of most people to the call to shut down Wall Street is one of jubilant enthusiasm — a measure of the public outrage at Wall Street excesses. The second reaction is, “But what about my 401(k) retirement account?” The same question might be raised about our credit cards, mortgages, and medical, homeowners, and auto insurance.
In fact, the Wall Street way of dealing with each of these is a scam. Wall Street doesn’t develop its business plans to meet our needs; it develops its plans to place us in a position of dependence on Wall Street products that afford it the greatest opportunity to profit at our expense.
There are better ways to meet each of the needs that Wall Street offerings address. To understand the options, we must step back to identify the real need we are trying to satisfy and then explore what the alternatives might be to the Wall Street product.
This chapter is about that exploration. Along the way, we will come to recognize the ways in which Wall Street has succeeded in limiting our options to those that generate the greatest profit for itself. In each instance, we will find that we will be better served by options that Wall Street has denied us or hopes we will not discover.
In short, we are the marks in a sophisticated Wall Street con game that depends on our buying into the illusion that phantom wealth is somehow real.
PHANTOM WEALTH IS ONLY PHANTOM WEALTH
To understand what we are up against, we must revisit the distinction between phantom wealth and real wealth. Phantom wealth is bogus, a product of illusion and fantasies of effortless luxury that are expertly cultivated by highly skilled professional propagandists funded by Wall Street with billions of advertising dollars. To get the picture on the fantasy, thumb through any business magazine and look at the images and promises in the ads for Wall Street investment houses. These ads are part of what in con slang is called setting up the mark.
Setting Up the Mark
I grumble every time I hear business reporters on the evening news refer to stock market results by saying, “Today, investors [did this or that].” It is another example of setting up the mark by manipulating the language to make the marks believe that they are making a serious, solid investment rather than betting on a crapshoot. Gambling in Vegas is more honest. There you don’t “invest” in the roulette wheel. You place a bet on the ball. On Wall Street, bets on the movement of prices of pieces of paper are called investments to make them sound real and productive.
Real investors commit funds and entrepreneurial energy to creating and growing businesses. People who buy and sell pieces of paper in hopes of making unearned gains on price movements are engaging in speculation, otherwise known as gambling, and those who hold the bets and distribute the winnings are bookies or dealers. Simply using honest language would help to distinguish between real investors creating real wealth and speculators creating phantom wealth with financial games.
The con is so massive and sophisticated that even many of its most important inside players do not recognize themselves as accomplices in a fraud. They buy into the Edmunds fallacy described in chapter 2, believe they are creating real wealth, and convince themselves, in the memorable words of Goldman Sachs CEO Lloyd Blankfein, that they are “doing God’s work.”
Four Wall Street Cons
Boil it down to the basics and you see that Wall Street is in the business of operating four sophisticated, large-scale confidence games.
• counterfeiting: It creates facsimiles of official money for private gain unrelated to anything of real value — facsimiles otherwise known as phantom wealth.
• securities fraud: Selling shares in asset bubbles that are maintained solely by the constant inflow of new money is, in effect, a Ponzi scheme.
• reverse insurance fraud: Insurance fraud by common definition occurs when the insured deceives the insurer. In reverse insurance fraud, the insurer deceives the insured. In Wall Street practice this involves collecting premiums to cover risks the insurer lacks adequate reserves to cover and then refusing to pay legitimate claims.
• predatory lending: Using a combination of extortion, fraud, deceptive promises, and usury, predatory lenders lure the desperate into perpetual debt at exorbitant interest rates.
Given Wall Street’s hold on lawmakers, these may all be perfectly legal, but phantom wealth is still phantom wealth, and a con is still a con.
In three-card monte the dealer shuffles the cards so fast you can’t follow them, and talks even faster. Complex derivatives are a fast shuffle that makes it virtually impossible to follow the connection to any real value.
What makes the Wall Street con so much better for the dealers than a typical street-level three-card monte con is that Wall Street dealers are able to bet on their own game using other people’s money and then manipulate the market outcome in their own favor, just as the monte dealer manipulates the shuffle.
Some Wall Street observers suggest that the big players like Goldman Sachs have the ability to use their capacity for microsecond trading to move markets at will, both to extract speculative earnings and to send a warning message to politicians who propose actions they want to kill.1 They further rig the game by rewarding themselves with huge bonuses when they win and taking billions in taxpayer bailouts when they lose. It sure beats being a dealer on the street or in Vegas.
Unfortunately, no magic wand can convert the phantom-wealth expectations created by Wall Street to the real wealth we must have to meet our retirement needs for real food, shelter, and medical care; treat our ailments; or make us whole after a fire or collision. In the real world, there is no way to fulfill the promise of the mythic dream that Wall Street has so skillfully cultivated. These needs can be met only by people and organizations engaged in producing real-wealth goods and services.
Using taxpayer money to make good on false promises — that is, to make whole those whom Wall Street has defrauded — only shifts the burden from those who once had enough money to play the Wall Street game onto those who did not play.
Here is what we can do as part of the economic restructuring outlined in chapter 13.
RECOVER THE LOOT AND SHUT DOWN THE TABLE
We can start by recovering from the Wall Street con men what we can of their unearned phantom loot and encouraging them to take up honest work by rendering their schemes against society either illegal or unprofitable. Here are a few suggestions:
1. Legislate an outright prohibition against selling, insuring, or borrowing against an asset not actually owned by the seller or issuing any security not backed by a real asset. With a little investigation, competent regulators can surely come up with a longer list, but you get the idea — and yes, these are all common Wall Street practices that generate substantial quantities of phantom wealth, distort markets, and create instability.
2. Place strict limits on how much a financial institution can borrow in order to buy a property, and establish reserve and capital requirements for institutions in the business of selling insurance of any kind.
3. Regulate bond-rating agencies and impose strict penalties for fraudulent ratings.
4. Impose a small financial-speculation tax of a penny on every $4 spent on the purchase and sale of financial instruments such as stocks, bonds, foreign currencies, and derivatives. This would have no consequential impact on real investors making long-term investments in real businesses and assets. But it would discourage extremely short-term speculation and arbitraging (the simultaneous purchase and sale of the same asset in different markets to profit from fleeting minuscule price differences).2
5. End the preferential tax treatment of hedge fund manager compensation. Currently, an obscure tax loophole allows hedge fund managers to report their billion-dollar compensation packages as capital gains, taxed at only 15 percent, whereas the wages of real workers are taxed at much higher rates.
6. Assess a significant surcharge on short-term capital gains to make many forms of speculation unprofitable, stabilize financial markets, and lengthen the investment horizon without penalizing real investors. The capital gains surtax on profit from the sale of an asset held less than an hour should be 100 percent. For assets held less than a week, it might be as high as 80 percent, perhaps falling to 50 percent on assets held more than a week but less than six months.
Opponents will claim that such taxes will stifle financial innovation. Good. That is the intention. We should not be providing incentives to financial predators to come up with ever more innovative forms of theft.
FREE THE DEBT SLAVES
Debt slavery is an ancient institution that traces back to the beginning of Empire. In earlier times, it was more explicit and visible, because it was more personal. The hapless borrower became the bonded servant or slave of the lender — a condition that prevails today in many low-income countries. In the contemporary United States, it is more systemic and less personal.
Indentured service, a condition in which servants are not at liberty to negotiate the terms of their labor or leave their masters, played a major role in the economic history of the United States.
At the time of the settling of the North American continent, land in Europe was scarce and its ownership concentrated. Surplus labor kept wages low and unemployment high. Tales of America’s vast fertile lands and great wealth free for the taking stirred the imagination of Europeans of all classes, but especially the poor and starving whose home-lands afforded them neither land nor employment.
Those unable to pay for passage to the New World agreed to commit to a period of indentured service to whomever was willing, on their arrival, to pay their debt to the ship captain who provided passage. Many a young woman voluntarily became the wife of whatever man paid the captain’s fee. Once married, a woman and all she owned, acquired, or produced became the property of her husband. The status of an indentured servant differed from that of an outright slave mainly in having a promised date of release.
Following the Civil War, blacks were technically free, but whites owned the land and controlled the jobs on which blacks depended for survival. Continuing the imperial pattern, the rights of owners continued to trump the rights of workers as the moneylenders stepped in for the kill. Blatantly unfair sharecropper arrangements forced blacks into debts that became an instrument of bondage only one step removed from an outright return to slavery.
In the period following World War II, full employment and high wages for working people, combined with high taxes for the rich, created the celebrated American middle class. For a historically brief period, debt slavery became a relatively rare condition, at least for whites. Then, as Wall Street fundamentalists gained control, they weakened unions and outsourced jobs to create a downward pressure on wages while increasing the use of sophisticated advertising to promote ever more extravagant lifestyles and the use of credit card debt to finance them.
As wages continued to fall relative to the cost of living, Wall Street promoted credit card and mortgage debt as the solution. Some people responded out of sheer desperation to put food on the table. Innocents simply bought into Wall Street’s enticements to consume now, pay later. People were soon locked into ever-growing debt they could never repay, and Wall Street’s take from whatever pittance they were able to earn increased, as did the total share of income going to those who lived off Wall Street profits relative to those who did honest work. Thanks to Wall Street’s control of the political system, this kind of indentured servitude is not only mostly legal but also is enforced by a legal system that favors the rights of property over the rights of people.
In a related move, Wall Street pressed for tax breaks for the rich and an expansion in military spending. The government began running up record deficits. To make up for the lost tax revenues, the government borrowed from the rich what it had formerly raised from them in taxes — much as working people were borrowing from the rich to make up for inadequate wages. Government also became a debt slave to Wall Street.
When Wall Street got in trouble, Washington, suffering from what we might call battered-slave syndrome, responded with a bailout paid for with money it borrowed from Wall Street courtesy of the Federal Reserve.
Regulating the abusive slave masters to reduce fraud and place limits on their excesses seems a positive step within the established frame. It reduces the deception and the pain of the indebted. On the downside, it lends a patina of legitimacy to Wall Street and helps deflect the public outrage that might otherwise provide political support for a more serious system transformation.
The proper goal is not to make debt slavery safer and more comfortable. It is to eliminate such slavery by raising the wages of working people and the taxes of the moneylenders while rethinking our approach to meeting a variety of needs to which Wall Street offers itself as the solution.
RETHINKING HOW WE DEAL WITH REAL FINANCIAL NEEDS
Money may be nothing but a number, but survival in a modern society is impossible without it. There are, however, better ways to deal with our very real financial needs than those presently offered by Wall Street.
Let us look at alternatives for consumer credit, home mortgages, insurance, retirement, and equity investments. Be forewarned that what follows is not a self-help primer on managing your money and securing your retirement. Rather, it is a primer on why the options available won’t meet your needs and what we need to do as a society to change that.
Consumer Credit
Credit and debit cards have two distinct functions: clearing transactions and providing an open line of credit. The use of debit and credit cards to clear transactions is a straightforward and beneficial service if properly regulated and transparent. The use of either as an open line of credit, particularly to pay for current consumption, is an enticement to debt slavery and an instrument of predatory lending.
To maintain the convenience of paying with plastic as a substitute for writing checks, New Economy community banks, savings and loan associations, and credit unions can form a transaction-clearing system owned cooperatively by its member institutions. The largely nonprofit system can operate as a transparent and publicly accountable regulated public utility.
Financing for large durable purchases such as a home, car, or major appliance can be arranged on a case-by-case basis with a local bank, savings and loan, credit union, or even the local merchant from which the purchase is made.
In my youth, I worked for a time in the credit department of my dad’s music and appliance store. My dad loved making money, but that love was always second to the commitment at the core of his identity to provide reliable products and services to the people of the community in which we lived. In my experience, this is typical of small-business owners who have strong community roots.
At what by current standards was a very modest interest rate, we offered a one- to three-year payment plan for major purchases such as a piano or refrigerator that would serve for many years. We retained title to the merchandise until all payments were received, and our primary recourse was to repossess if the buyer defaulted. If customers who demonstrated good faith ran into temporary difficulty from an illness or business downturn, we noted this on the accounts and generally worked out some arrangement that would allow them to keep the merchandise and pay as they were able. There were no penalties or special fees.
We financed this service with a commercial line of credit from our local bank, secured by our customer accounts receivable — promises to pay from people we knew and on whose future business we depended. We made the decisions and carried the risk. It was an arrangement that encouraged responsible decision making on all sides.
The solution to wages inadequate to provide for daily needs is not easier, cheaper, or fairer credit; it is to restore living-wage jobs, tax the rich to provide a floor of essential public services, and reduce household expenses by restoring the household as a unit of production.
We restore living-wage jobs by rolling back ill-conceived trade policies that encourage the international outsourcing of jobs and the suppression of wages, by raising the minimum wage, and by generally making the provision of living-wage jobs for all who seek them an economic policy priority.
We restore basic public services by taxing the rich commensurate with the benefits they have received from society and by rolling back wasteful government expenditures on military adventurism and corporate subsidies.
We restore household production by reorganizing our lives so we devote less time to paid employment and more to undertaking many of the things at home that we have outsourced to the money economy, such as gardening, food processing, meal production, lawn care, handyman tasks, entertainment, and child care.
The restoration of household production has received a major boost from an economic downturn that leaves many people with more time than money. Others, particularly youth, are pioneering this path by choice and discovering how to do it in ways that are both highly fulfilling and consistent with an appropriate commitment to balanced gender roles and work sharing. I’m a fan of Shannon Hayes’s Radical Homemakers: Reclaiming Domesticity from a Consumer Culture,3 which shares the stories of these modern pioneers and the lessons of their experience.
To sum it up, the appropriate cure for systemic debt slavery is a New Economy.
Home Mortgages
The purpose of a mortgage is to finance homeownership, not to create a foundation for loan pyramids, fuel speculation, and inflate a housing bubble. The idea that the inflation of housing prices is creating wealth is only one of many phantom-wealth fictions. It may increase the relative advantage of homeowners over renters, but escalating home prices create a growing barrier to first-time homeownership. And using one’s home as a substitute for a paying job to support current consumption is a path to serfdom.
The goal of broad participation in responsible homeownership is best advanced by increasing job security, raising wages, and maintaining stable housing prices. We also can create a system of responsible mortgage lending, much like the one we once had.
That system consisted of local financial institutions, primarily member-owned savings and loan associations, that served as repositories for local savings and issued mortgages to homebuyers with the backing and strict supervision of various federal agencies. It worked well until deregulation of the financial system broke down the carefully calibrated division of responsibilities among local financial institutions and opened the door to increasingly risky and predatory behavior.
It is time to restore a system of well-regulated community banking to serve a variety of community needs for legitimate and responsible financing, including homeownership.
Insurance
Insurance involves an arrangement by which a group of individuals join a risk pool to guarantee one another against individual ruin from a catastrophic illness, fire, or other random, unavoidable event.
There are three basic approaches to organizing an insurance pool.
1. PRIVATE NONPROFIT: A number of people or institutions voluntarily form a mutual insurance association that pools the risks for certain disasters or life events, such as fire, flood, or disability. Each member of the pool takes on the roles of both insurer and insured in a community-based mutual security arrangement grounded in cooperation, caring, and sharing. Any excess in premiums collected over the cost of the claims paid plus appropriate reserves is returned to the policyholders. Often identified by the word mutual in the name, as in Mutual of Omaha, this type of association was once the most common way of organizing insurance services.
2. GOVERNMENT: A government insurance program such as Social Security or Medicare organizes and manages a mutual pooling of risk on a national scale. Coverage is mandatory, which assures universal coverage, spreads the risk over a large number of people, and minimizes the costs of recruitment and administration.
3. PRIVATE FOR-PROFIT: A private, profit-seeking individual or entity offers to insure against specified risks in return for a fee. This creates a sharp divergence between the roles and interests of the insurer and insured. Both, of course, would prefer to avoid a loss, but the insurer wants to maximize fees and minimize the payment of claims, whereas the insured wants the opposite. This conflict of interest encourages the insurer to exclude those in greatest need and to find excuses to reject legitimate claims. It also carries high overhead costs to cover dividends to shareholders, executive bonuses, marketing campaigns, claims processing, and disputes over denied payments. The results can be disastrous, as is the case with the U.S. private health insurance industry.
Generally, the private nonprofit and government options provide the strongest and most socially efficient risk-sharing solution. The least satisfactory from a community perspective is a noncompetitive, private for-profit system.
Attempting to create a system that involves competition between a mix of nonprofit and unregulated for-profit providers creates an inherently destructive dynamic. Nonprofit providers are committed to providing everyone with affordable care; for-profit providers are concerned only with maximizing profits. If not prevented by government regulation, the for-profits will cherry-pick the pool of insurance buyers by offering lower rates than the nonprofit — but only to the young and healthy who are the least likely to need expensive care.
This leaves the sick and elderly to nonprofit providers. To raise the premiums on their narrowed customer pool sufficiently to cover the claims would place those premiums out of reach of any but the richest members of society, who have no need of such insurance in the first place.
The nonprofit thus either stops covering those in evident need and competes with the for-profit for the low-risk population or is forced into bankruptcy. Either way, those with the greatest need go without care. This is exactly what happened in the case of health insurance in the United States, and it did in some wonderful nonprofit providers.4
There is a deeper problem that no form of insurance risk pooling can resolve on its own. Many previously insurable risks are escalating out of control for reasons that lead back to a dysfunctional economic system.
Health care costs are an example. Part of the reason for their escalation can be traced to price gouging by pharmaceutical companies, the practice of defensive medicine driven by the fear of lawsuits, and aggressive end-of-life care that may at best extend life by a few months. Possible solutions include encouraging greater competition among pharmaceutical makers by limiting patent protection, reforming the tort system to distinguish between defensible questions of judgment and true malpractice, and expanding coverage for hospice care. Action on these issues falls more to government than to either nonprofit or for-profit insurance providers.
If we look further upstream, we find causes that fall entirely outside the province of health care institutions. These include the toxic contamination of our air, water, and soil; heavy advertising of junk food rich in salt and sugar; and sedentary lifestyles devoted to watching TV and playing video games. We could be healthier and achieve enormous health care savings by increasing the availability of nutritious food to inner-city residents, banning junk food from schools, lowering the amounts of sugar and salt allowed in processed foods, improving food labels, and levying a fee on junk food advertising to cover related health care costs and public education programs. We also could provide easy access to home and neighborhood primary health care (as Cuba, for example, does) and lay out public spaces in ways that encourage walking and bicycling.
We need a similar approach to reducing the impact of catastrophic weather events, which are almost certain to increase. We must deal with the cause by reducing carbon emissions while at the same time investing in remediation actions such as improving levees, removing brush, changing land-use patterns, and revising building codes.
Above all, we must keep in mind that our best insurance when tragedy does strike is a strong and resilient community that mobilizes quickly for mutual assistance. Building strong, equitable, and resilient communities brings us back to the seven critical system interventions outlined in the previous chapter.
Again, the look upstream brings us back to the need for a New Economy.
Retirement
So what about retirement and our dependence on our 401(k)s to provide support in our elder years? Here we encounter perhaps the most cunning and diabolical element of the Wall Street con. We are lured into placing our retirement funds with Wall Street investment houses by an impossible and carefully cultivated dream of ten to twenty years of secure and effortless retirement luxury. After our money is in Wall Street hands, we have a stake in political decisions favorable to Wall Street interests — and in believing and perpetuating Wall Street’s phantom-wealth lies. The prospect that Wall Street is interested only in its own commissions and is gambling away our money on phantom-wealth Ponzi schemes that cannot be sustained and would not in any event fulfill the promise is too frightening to consider, because society offers us few alternatives for dealing with retirement.
Recall the Malaysian forestry minister mentioned in chapter 2 who wanted to cut down all the trees and put the money in the bank to earn interest. Debates about individual retirement accounts and putting Social Security money in an interest- bearing “lockbox” are based on the same phantom-wealth fallacy.
Retirees cannot eat money. They need real food, shelter, medical care, clothing, recreation, and other goods and services — all of which must be produced and provided by working people at the time the retirees’ needs are presented.
In the real world, retirement is necessarily a contract between retirees and the working people who agree to devote a portion of the fruits of their labor to providing for the retirees’ needs. The threat facing future retirees is not insufficient money — which government can easily create with an accounting entry — it’s demographics.
In 1935, when the newly signed Social Security bill set the retirement age at sixty-five, males at birth had a life expectancy of sixty years. The average person was dead at sixty-five. Life expectancy rose to seventy-four by 2005 and is expected to grow to eighty-five by the end of this century. The accepted retirement age, however, has stayed almost the same, creating an increasingly impossible expectation that those of working age (from around twenty to sixty-five) will reduce their own consumption relative to the value of what they produce, sufficient to support extended vacations of ten to twenty years’ duration for a rapidly growing population of folks over sixty-five.
In 1960, there were five working people per retiree. Because of longer life spans and the greater percentage of people reaching retirement age, that ratio was 3.3 to 1 in 2004 and, unless the retirement age changes dramatically, will be down to 2 to 1 by 2040.5 At some point, working people struggling to keep their children fed and clothed will say, “Enough already.” Whether we assume that they will be compensated by money from Social Security taxes or phantom-wealth returns created from nothing by Wall Street is a technicality. Either way the burden is unsustainable.
Another conceptual flaw is the Wall Street argument that private investment accounts are a proper retirement solution. We have no idea how long we will live or what our end-of-life medical needs will be. I might have died in an accident or suffered a lethal heart attack the day before I reach sixty-five, in which case I would have needed no retirement account at all. Or I might live to 105 and spend my final years in intensive care, in which case I might need a retirement account in the millions of dollars. Most people fall somewhere in between, but no one knows what his or her individual need will be.
Retirement is not an individual savings issue; it is an insurance issue that requires a pooling of risk and an inter-generational contract. The basic design of Social Security is sound on both these counts so long as the ratio of retirees to workers does not become so high as to place an unbearable burden on the working generations. This issue can be resolved only by changing our expectations regarding the appropriate retirement age.
The larger society can and should manage Social Security as a universal insurance pool to provide for the care of the physically and mentally incapacitated of any age, but it has neither the means nor the moral obligation to guarantee any able bodied person a ten- to thirty- or forty-year fully funded vacation. Most of us need to remain active contributors to the real-wealth economy for as long as we are able.
A major shift in our thinking is required to recognize that the truly satisfying life is one of creative engagement. If we organize societies to make work fulfilling and engaging, then it becomes a source of self-fulfillment for everyone, including those of us in our elder years. So we are back again to the New Economy.
This brings us to another question that may already have occurred to you. If we eliminate Wall Street, how will we provide equity funding for productive enterprises?
WHAT YOU AREN’T SUPPOSED TO KNOW ABOUT THE STOCK MARKET
According to the corporate-ethics guru Marjorie Kelly, the public sale of newly issued corporate common stock in 1999 netted $106 billion. That was the only money from stock sales that went to the issuing corporation. It was less than 1 percent of the $20.4 trillion in corporate shares traded in that same year.
Even more surprising, Federal Reserve data reveal that during the twenty years from 1981 to 2000, the overall net flow of money to corporations from stock sales was a negative $540 billion, meaning that the corporations spent more money from their treasuries to buy back their own shares than they raised by selling new shares.6
One might wonder why corporate management would use company money to buy back its own shares rather than use it either to pay dividends to shareholders or to invest in new productive capacity.
The effect of such purchases is to inflate the price of the stock, which defenders of the practice point out serves shareholder interests. Another answer is offered by the independent market observer and author Thornton Parker. Using Federal Reserve statistics, Parker found that from 1982 to 2008, the largest net sellers of corporate stocks were households — to the tune of $5,082 billion, or just over $5 trillion. Corporations during this same period were net buyers by $737 billion.7
At first blush, it makes no sense. The presumed function of share markets is to facilitate the purchase of corporate shares by households to raise money for productive corporate investments. Corporations should be net sellers and households should be net buyers.
Parker provides a telling explanation. When corporate executives sell the shares they receive as part of their compensation packages, the proceeds go to them, not to the corporation, and therefore count as household sales. The data thus suggest that since the 1980s, the function of the public share markets has been to fund the private fortunes of corporate executives who took a major portion of their compensation in newly issued shares.
Ownership, as discussed in chapter 13, should be in the hands of people who have a stake in the long-term health of the enterprise and the community and ecosystem in which it is located. Rather than turn our retirement savings over to Wall Street con artists, we will do much better as individuals and as a society to favor direct, long-term investments by individuals in companies of which they have personal knowledge. An owner who needs to cash out his or her shares can sell them to another owner, a new stakeholder, or even the company itself in a private transaction.
Wall Street operates a sophisticated con game that leaves us dependent on a series of scams that it presents to us as financial services essential to our well-being. By pushing down wages relative to the cost of living, Wall Street makes us ever more dependent on consumer credit and borrowing against our home equity. The greater our desperation, the higher it pushes fees and interest rates. It collects our insurance premiums in exchange for promises of payment in the event of a personal disaster that it has no intention of keeping.
It entices us to put our savings in the care of professionally managed phantom-wealth funds with fantasies of a luxurious ten- to twenty-year work-free vacation at the end of our lives that would place an impossible burden on the working population. It would have us believe that when we buy shares of stock on Wall Street exchanges we are providing investment funds for companies to expand productive output, when in fact we are mostly converting our personal financial assets to the personal financial assets of Wall Street privateers.
Daily expenditures should be covered by living family wages. Insurance is best provided by nonprofit insurance pools managed for the benefit of their participants. Old-age security depends on an intergenerational contract. Savings should flow to real investment in real productive enterprises and infrastructure.
As we shall see in part V, the leadership for change will not come from within the Wall Street–Washington axis. It will come from a powerful citizen movement that reframes the public debate and the political context. The movement will know it is on a path to success when a sitting president issues a Declaration of Independence from Wall Street and outlines a New Economy agenda.