The Chickens Have Come Home to Roost on Wall Street

It is simple, yet complex. Stocks, bonds, and some of their sometime bastardized creations—mutual funds, hedge funds, options and derivatives—are the staples of Wall Street and its equivalents worldwide. Humans have always pooled their resources for the common good and prosperity of individuals. However, nothing has had such a profound effect on human fortunes—collectively as well as individually—than the concept of stocks and bonds.

It is simple. For a piece of paper, or now paperless “ownership on street name” you can get money to carry out your idea into production. If the idea succeeds, the contributors make a killing as the value of their contributions should rise as the widget sells. From time to time the widget maker may need additional long-term capital not readily available from banks. He can issue another piece of paper for money he promises to repay in a few years. Thus bonds were created. And governments use the bond tool, backed by taxation, to finance public projects.

Even when it remained that simple, there were already problems in paradise. The whole idea hinges on trust and public confidence. Since man is in a state of samsara, we are burdened with the delusion of greed. So we got the 1929 Stock Market Crash, the 1987 Black Monday and, now the 2008 Bush Depression.

In my younger days I happened to have worked, as a stockbroker, for almost four years at a branch of Merrill Lynch—now taken over by Bank of America. It was an experience far removed from the cattle herd-boy days in the grasslands of Acholiland. As a recruit I had to gather assets—meaning, bring in as much money as you can by all kinds of arcane investment products. It entailed contacting and playing with the well-offs. Once you gathered the assets, you moved them hither and thither—that is how a retail broker makes the big commissions. It was exciting, and it was fun when it lasted. But I lost sleep, became cocky, and was very unhappy.

The question some may be asking: Why were investment bankers like Bear Stearns, Lehman Brothers, and Merrill Lynch doing in the mortgage industry space, when it has been the province of regular banks like Bank of America? Blame Milton Friedman, head of the University of Chicago high priests of unfettered fundamentalist capitalism. The Friedmantists, in their Taliban-like zeal, influenced the deregulation in the financial industry that released the floodgate of Wall Street greed. Mortgage big daddies, Fannie Mae and Freddie Mac chopped the mortgage loans and represented them in stocks to be bought and sold by sweet-talking brokers. The Investment banker cowboys entered the mortgage-lending frenzy because they wanted the lucrative securitized mortgage products. When the subprime loans, funded by the Chinese and petro-dollars, tanked, the mortage-backed secuirities followed suit. What happened to you if you had billions of these junk stocks? Bankruptcy.

So, my prescription for the current credit and Wall Street debacle: keep it simple and keep it regulated because man is inherently evil.