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War on Crime Revs Up on Wall Street
ByPeter Morici, Senior Contributor to TheStreet , On Monday May 23, 2011, 8:
30 am EDT
The following commentary comes from an independent investor or market
observer as part of TheStreet's guest contributor program, which is separate
from the company's news coverage.
NEW YORK (TheStreet) -- These days the Justice Department and the Securities
and Exchange Commission are investigating Wall Street using tactics, such
as wire taps, usually reserved for professional criminals and terrorists.
Apparently, those agencies recognize what the Treasury and the Federal
Reserve simply won't admit: Insider trading, robo foreclosures and peddling
dodgy securities to unsuspecting investors are old-fashioned fraud. These
practices handicap American capitalism in global competition and undermine
prosperity.
With subpoenas for executives at Treasury's favorite son Goldman Sachs and
Senate investigations into rogue trader SAC Capital Advisors, legal pursuit
is scaling up to a 1930s Hollywood gangland saga. And America's most
privileged are in the crosshairs.
That's sad but not bad, because more than a decade of sharp practices and
multimillion-dollar bonuses on Wall Street have turned the stock market into
a sucker's bet for Main Street investors and handicapped American growth in
the bargain.
Punitive settlements and convictions -- resulting from investigations into
insider trading at Galleon and SAC, shoddy mortgage foreclosure practices at
Bank of America and shady marketing of mortgage backed securities at
Goldman Sachs -- ultimately, would curb cynical behavior and ever bigger
paydays on Wall Street, and improve returns for stock investors. As
importantly, it would redirect American capital and talent toward more
productive, jobs-creating purposes.
In February 1998, the S&P 500 first closed higher than 1000. Since then,
corporate profits are up about 210% percent, but equities have risen less
than 35%. Corporate profits rose 6% annually, but investing in stocks paid a
disappointing 2.3% a year.
Buying stocks doesn't seem to pay, because too much of the profits created
by innovators with ordinary investors' capital is captured by hedge funds,
Wall Street trading desks, private equity houses, aggressive M&A shops, and
then paid to Wall Street executives and traders.
In the drive for ever bigger compensation packages, Wall Street's best and
brightest violate boundaries of ethical behavior and the law. Not all of our
problems can be laid on Wall Street's steps, but its culture of entitlement
and sharp practices impose enormous burdens.
Huge Wall Street incomes, juiced by duping investors, deprive pension funds
and ordinary investors of the returns they are due on their stocks.
The absence of significant appreciation in equities for more than a decade
means that many retirees dependent on IRAs and other defined contributions
vehicles can no longer live comfortably, and many baby boomers who have been
pushed into such pension vehicles can't retire. Their money may be working
hard, but only for Wall Street titans and not for them.
It is sound public policy to encourage workers to save for retirement,
instead of relying on the promise of a defined benefit pension from an
employer that may ultimately disappear, but contributions-defined pensions
simply can't work without a stock market that generates returns that follow
the growth of corporate profits.
Americans expect carnivals and casinos to be stacked against them --
gambling is entertainment, and losses are expected -- but capital markets
are where the nation's savings are supposed to be put to best uses, drive
growth and create opportunities for the next generation.
These days, too much money and talent are directed to financial engineering
ByPeter Morici, Senior Contributor to TheStreet , On Monday May 23, 2011, 8:
30 am EDT
The following commentary comes from an independent investor or market
observer as part of TheStreet's guest contributor program, which is separate
from the company's news coverage.
NEW YORK (TheStreet) -- These days the Justice Department and the Securities
and Exchange Commission are investigating Wall Street using tactics, such
as wire taps, usually reserved for professional criminals and terrorists.
Apparently, those agencies recognize what the Treasury and the Federal
Reserve simply won't admit: Insider trading, robo foreclosures and peddling
dodgy securities to unsuspecting investors are old-fashioned fraud. These
practices handicap American capitalism in global competition and undermine
prosperity.
With subpoenas for executives at Treasury's favorite son Goldman Sachs and
Senate investigations into rogue trader SAC Capital Advisors, legal pursuit
is scaling up to a 1930s Hollywood gangland saga. And America's most
privileged are in the crosshairs.
That's sad but not bad, because more than a decade of sharp practices and
multimillion-dollar bonuses on Wall Street have turned the stock market into
a sucker's bet for Main Street investors and handicapped American growth in
the bargain.
Punitive settlements and convictions -- resulting from investigations into
insider trading at Galleon and SAC, shoddy mortgage foreclosure practices at
Bank of America and shady marketing of mortgage backed securities at
Goldman Sachs -- ultimately, would curb cynical behavior and ever bigger
paydays on Wall Street, and improve returns for stock investors. As
importantly, it would redirect American capital and talent toward more
productive, jobs-creating purposes.
In February 1998, the S&P 500 first closed higher than 1000. Since then,
corporate profits are up about 210% percent, but equities have risen less
than 35%. Corporate profits rose 6% annually, but investing in stocks paid a
disappointing 2.3% a year.
Buying stocks doesn't seem to pay, because too much of the profits created
by innovators with ordinary investors' capital is captured by hedge funds,
Wall Street trading desks, private equity houses, aggressive M&A shops, and
then paid to Wall Street executives and traders.
In the drive for ever bigger compensation packages, Wall Street's best and
brightest violate boundaries of ethical behavior and the law. Not all of our
problems can be laid on Wall Street's steps, but its culture of entitlement
and sharp practices impose enormous burdens.
Huge Wall Street incomes, juiced by duping investors, deprive pension funds
and ordinary investors of the returns they are due on their stocks.
The absence of significant appreciation in equities for more than a decade
means that many retirees dependent on IRAs and other defined contributions
vehicles can no longer live comfortably, and many baby boomers who have been
pushed into such pension vehicles can't retire. Their money may be working
hard, but only for Wall Street titans and not for them.
It is sound public policy to encourage workers to save for retirement,
instead of relying on the promise of a defined benefit pension from an
employer that may ultimately disappear, but contributions-defined pensions
simply can't work without a stock market that generates returns that follow
the growth of corporate profits.
Americans expect carnivals and casinos to be stacked against them --
gambling is entertainment, and losses are expected -- but capital markets
are where the nation's savings are supposed to be put to best uses, drive
growth and create opportunities for the next generation.
These days, too much money and talent are directed to financial engineering
