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Wall Streetís New Gilded Age (Wall Street players thrive, Main Street dives)
Newsweek ^ | 9/12/2009 | Niall Ferguson |

Posted on 09/12/2009 7:07:27 AM PDT by SeekAndFind

Since its birth, the United States has grappled with the problem of an over-mighty financial sector. With the exception of Alexander Hamilton, the Founders' vision was of a republic of self-reliant farmers and small-town tradesmen. The last thing they wanted was for New York to become the London of the New World—a mammon-worshiping metropolis in which financial capital and political capital were rolled into one. That was why there was such resistance to creating a central bank, and why—despite two attempts—we have no Bank of the United States to match the Bank of England. That was why populists railed against the adoption of the gold standard after the crash of 1873. That was why there was so much suspicion when the Federal Reserve System was created in 1913. That was why government regulation of Wall Street was so strict from the Depression until the 1970s.

But now, barely a year after one of the worst crises in all financial history, we seem to have returned to the Gilded Age of the late 19th century—the last time bankers came close to ruling America. A few Wall Street giants, led by none other than -JPMorgan, are back to making serious money and paying million-dollar bonuses. Meanwhile, every month, hundreds of thousands of ordinary Americans face foreclosure or unemployment because of a crisis caused by … a few Wall Street giants. And what makes the losers in this crisis really mad is the fact that there's now one law for the small debtors and another for big ones. If you lose your job and fall behind on your $1,500 monthly mortgage payment, no one's going to bail you out. But Citigroup can lose $27.7 billion (as it did last year) and count on the federal government to hand it $45 billion.

(Excerpt) Read more at newsweek.com ...


TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: 111th; bho44; mainstreet; millionaires; stockmarket; third100days; wallstreet
Between 1990 and 2008, according to Wall Street veteran Henry Kaufman, the share of financial assets held by the 10 largest U.S. financial institutions rose from 10 percent to 50 percent, even as the number of banks fell from more than 15,000 to about 8,000. By the end of 2007, 15 institutions with combined shareholder equity of $857 billion had total assets of $13.6 trillion and off-balance-sheet commitments of $5.8 trillion—a total leverage ratio of 23 to 1. They also had underwritten derivatives with a gross notional value of $216 trillion. These firms had once been Wall Street's "bulge bracket," the companies that led underwriting syndicates. Now they did more than bulge. These institutions had become so big that the failure of just one of them would pose a systemic risk.
1 posted on 09/12/2009 7:07:28 AM PDT by SeekAndFind
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To: SeekAndFind
Their size is the basis of their power. If one of these giants goes under, it really could drag the rest of them, and the whole of the economy of the US, and by extension that of the whole world, into the toilet with them. That is why it was essential they were bailed out.

Unfortunately, if you do bail them out, then they will just keep on making the same mistakes, the same high risk financial adventures, and the same multi-million dollar payouts to the favored few, because they know there is no downside to it all going wrong.

2 posted on 09/12/2009 7:12:25 AM PDT by Vanders9
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To: SeekAndFind

An astute student of history and human nature, Thomas Jefferson, predicted what we see happening here in America. As ambassador in France, he witnessed the run up to the FIRST socialist/communist revolution there. He penned the following observations concerning what would happen HERE should that socialism come to the United States. He CORRECTLY predicted that we would become an increasingly contentious and litigious people as we shouldered one another out of the way to get OURS from the public trough and the trough would soon be empty.

He also knew where the bulk of the problem would originate.

That whirring noise you may hear coming from that mountain in Charlottesville, Virginia is Mr. Jefferson getting up to around 3600 RPM.

(A 6 minute video with this information may be seen at http://www.youtube.com/watch?v=ypLu49pq3bI)

As I understand it, at the time of the drafting of the Declaration, Mr. Jefferson originally wrote “…Life, Liberty and PROPERTY…” (meaning that one’s right to freely acquire, use and dispose of his property – to the extent doing so did not violate the same to others – was a Creator endowed right. Because slavery viewed humans as property, the phrase “Pursuit of Happiness” was adopted instead to avoid – at least for the time being — the inevitable debate on that subject.

“The mobs of the great cities add just so much to the support of pure government as sores do to the strength of the human body. It is the manners and spirit of a people which preserve a republic in vigor. A degeneracy in these is a canker which soon eats to the heart of its laws and constitution.” —Thomas Jefferson: Notes on Virginia Q.XIX, 1782. ME 2:230

“I think our governments will remain virtuous for many centuries as long as they are chiefly agricultural; and this will be as long as there shall be vacant lands in any part of America. When they get piled upon one another in large cities as in Europe, they will become corrupt as in Europe.” —Thomas Jefferson to James Madison, 1787. Papers 12:442

“I view great cities as pestilential to the morals, the health and the liberties of man. True, they nourish some of the elegant arts; but the useful ones can thrive elsewhere; and less perfection in the others, with more health, virtue and freedom, would be my choice.” —Thomas Jefferson to Benjamin Rush, 1800. ME 10:173

“Our cities... exhibit specimens of London only; our country is a different nation.” —Thomas Jefferson to Andre de Daschkoff, 1809. ME 12:304

“Everyone, by his property or by his satisfactory situation, is interested in the support of law and order. And such men may safely and advantageously reserve to themselves a wholesome control over their public affairs and a degree of freedom which, in the hands of the canaille of the cities of Europe, would be instantly perverted to the demolition and destruction of everything public and private.” —Thomas Jefferson to John Adams, 1813. ME 13:401

“An insurrection... of science, talents, and courage, against rank and birth... has failed in its first effort, because the mobs of the cities, the instrument used for its accomplishment, debased by ignorance, poverty, and vice, could not be restrained to rational action. But the world will recover from the panic of this first catastrophe.” —Thomas Jefferson to John Adams, 1813. ME 13:402

“I fear nothing for our liberty from the assaults of force; but I have seen and felt much, and fear more from English books, English prejudices, English manners, and the apes, the dupes, and designs among our professional crafts. When I look around me for security against these seductions, I find it in the wide spread of our agricultural citizens, in their unsophisticated minds, their independence and their power, if called on, to crush the Humists of our cities, and to maintain the principles which severed us from England.” —Thomas Jefferson to Horatio G. Spafford, 1814. ME 14:120


3 posted on 09/12/2009 7:16:00 AM PDT by Dick Bachert (.THE 2010 ELECTIONS ARE THE MOST IMPORTANT IN OUR LIFETIMES. BE THERE!!)
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To: SeekAndFind
Between 1990 and 2008, according to Wall Street veteran Henry Kaufman, the share of financial assets held by the 10 largest U.S. financial institutions rose from 10 percent to 50 percent, even as the number of banks fell from more than 15,000 to about 8,000.

That "even as" statement shows that the author is either confused or intentionally trying to confuse readers. Banks are merging because, among other reasons, because banking is very difficult to run efficiently on a small scale thus there is huge pressure to merge. Compare how a big bank will run hundreds of thousands of checking accounts versus some little two branch bank running hundreds of accounts. The cost per account is a lot less with bigger banks. Would anyone even open an account now with a bank that can barely put up a website, much less run full account information with automated bill paying? But operations like that have a huge cost for the first user with relatively little cost to add users after that.

Now if banks are merging (going from 15,000 to 8,000), why would it seem contradictory, as shown by the author's use of "even as", that the top banks grow in share? There may be arguments about whether going from 10% market share to 50% is much more than the expected 20% if bank mergers occur randomly, but it is not surprising that the share would increase. In fact it would be very surprising if it didn't increase.

4 posted on 09/12/2009 7:21:00 AM PDT by KarlInOhio ("I can run wild for six months ...after that, I have no expectation of success" - Admiral Obama-moto)
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To: SeekAndFind
They are living off of hundreds of billions of dollars of stolen tax money and it is only going to be some period of time before it all collapses.

LLS

5 posted on 09/12/2009 7:27:51 AM PDT by LibLieSlayer (hussama will never be my president... NEVER!)
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To: SeekAndFind

This is the establishment of the new POLITBURO - the “ruling” class of Goldman Sachs, etc...thanks to firends of Obmambi...stand by, folks...


6 posted on 09/12/2009 7:28:07 AM PDT by matginzac
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To: KarlInOhio

Even if you’re a big bank, efficiency can only carry you so far. At a major money center bank, the costs are about $110 a year for each checking account, even with millions of accounts.

It is in fact possible to have a good small bank, provided you aim at upper-middle class customers or higher, and they are willing to trade worldwide availability for personal service. Banks like this continue to open and do business.


7 posted on 09/12/2009 7:42:23 AM PDT by proxy_user
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To: SeekAndFind

The ‘notional value’ of derivatives is meaningless.

If I bet you $1 the Dow will go up on Monday, and you take my bet, the ‘notional value’ of this derivatives contract is the entire value of all Dow stocks trading on Monday. However, the most either one of us can make or lose is still $1.


8 posted on 09/12/2009 7:46:59 AM PDT by proxy_user
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To: SeekAndFind

I wonder how much of the run up we’re seeing in the DOW has to do with inflation. Is it possible the market is the first place inflation will become readily apparent? Is it possible the market is becoming a money laundering system for all the money being printed by the government without a matching increase in goods or productivity?

I have no understanding of these things, but sometimes an idiot can see something those too near the forest miss!


9 posted on 09/12/2009 7:53:54 AM PDT by jwparkerjr (God Bless America, and wake us up while you're about it!)
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To: proxy_user

“What Does Notional Value Mean?

The total value of a leveraged position’s assets. This term is commonly used in the options, futures and currency markets because a very small amount of invested money can control a large position (and have a large consequence for the trader).

For example, one S&P 500 Index futures contract obligates the buyer to 250 units of the S&P 500 Index. If the index is trading at $1,000, then the single futures contract is similar to investing $250,000 (250 x $1,000). Therefore, $250,000 is the notional value underlying the futures contract.”

One of the things I like most about FR is that at least weekly I have to Google a discussion point and I learn something.


10 posted on 09/12/2009 7:56:46 AM PDT by edcoil (If I had 1 cent for every dollar the government saved, Bill Gates and I would be friends.)
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To: SeekAndFind
If you lose your job and fall behind on your $1,500 monthly mortgage payment, no one's going to bail you out.

Don't be to sure about that.

It's just too far away from election time for the bailouts to be useful.

I'm sure some of that stimulus money they're holding back will be doled out next May or June.

11 posted on 09/12/2009 7:56:53 AM PDT by seowulf (Petraeus, cross the Rubicon.)
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To: SeekAndFind

I keep this 2008 article in mind when I think about the collapse:

http://www.aim.org/aim-column/soros-bets-on-us-economic-collapse/


12 posted on 09/12/2009 8:07:17 AM PDT by eleni121 (The New Byzantium - resurrect it!)
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To: Vanders9

Time to break them up into small entities that can’t do this kind of damage.


13 posted on 09/12/2009 8:21:10 AM PDT by Wolfie
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To: jwparkerjr
I wonder how much of the run up we’re seeing in the DOW has to do with inflation.

My personal opinion is that the markets are "forward looking". With the amount of spending the government is committing and a Congress that is controlled by one party with a senate that has RINO's like Olympia Snowe and Susan Collins practically acting like Democrats, there is very little resistance to the expansion of government. With government expansion, come spending, with spending comes either -- increased taxes, more debt or more printing of money. If we have this, then inflation is not far on the horizon. This is what the markets are anticipating right now. Notice the run-up in the price of Gold and Silver the past few weeks -- these commodities usually run up in anticipation of inflation.
14 posted on 09/12/2009 8:37:40 AM PDT by SeekAndFind
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To: edcoil

Well, let’s take a more real-world example.

The CDO is what everyone is primarily worried about with the money-center banks.

Last year, when Lehman failed, they defaulted on $380 billion in debt. This debt was heavily covered by CDOs from various large institutions; in fact, there were CDOs outstanding to the amount of five or six times this sum, or several trillion.

But when the 120-odd counterparties got together to settle up on their contracts, only a little more than $4 billion in cash changed hands. All the high notional value turned out to be due to hedging, and it reduced rather than increased risk.

Of course, there will always be some fool like AIG who doesn’t hedge, but companies like that won’t last long in the current environment.


15 posted on 09/12/2009 8:39:01 AM PDT by proxy_user
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To: SeekAndFind
A hundred years ago, people angrily compared the House of Rothschild to a giant octopus with its tentacles wrapped around the U.S. economy. Today it's the turn of Goldman Sachs to be likened to a "great vampire squid." To understand why, you need to go back 12 months.
16 posted on 09/12/2009 8:50:22 AM PDT by FromLori (FromLori)
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To: SeekAndFind

I don’t have a problem with the concept of Wall Street at all. It’s a way to raise capital. If people want to invest, great. If people have something of value they can invest in, great.

Where I have a problem with the concept, it is when large firms can grow to the point that they gobble up other concerns to the point where thousands of small firms become one large firm.

Leveraging compounds the problem, or should I say the massive size of these firms compounds the problem of over leveraging.

Excess is the problem. The one thing I thought Reagan made a big mistake on, was his support for allowing corporations to take over other corporations at an alarming rate. If we had put the brakes on this tactic, I think we would be much better off.

The pariah buy-outs and gutting of corporations in the U.S., is very problematic as I see it. It’s destructive and isn’t at all as ‘streamlined’ and good as some folks think it is.

With central management back east, and corporate entities ‘out there’ in the nether world, management is never as in tune with reality, and as concisely responsive as it needs to be.


17 posted on 09/12/2009 9:41:33 AM PDT by DoughtyOne (Wearing neck brace in commemoration of Ted Kennedy's contribution to our society.)
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To: SeekAndFind

Break them up.

there is no other solution.


18 posted on 09/12/2009 10:52:04 AM PDT by Tempest (I believe in the sanctity of life... As long as you can afford it.)
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To: KarlInOhio
That "even as" statement shows that the author is either confused or intentionally trying to confuse readers. Banks are merging because, among other reasons, because banking is very difficult to run efficiently on a small scale thus there is huge pressure to merge. Compare how a big bank will run hundreds of thousands of checking accounts versus some little two branch bank running hundreds of accounts. The cost per account is a lot less with bigger banks. Would anyone even open an account now with a bank that can barely put up a website, much less run full account information with automated bill paying? But operations like that have a huge cost for the first user with relatively little cost to add users after that.

I don't buy this. Computers are cheap, and checks are cleared by check-clearing houses, not the banks themselves anymore. The small banks hit the same problem as all small businesses. If privately owned, they eventually hit the estate tax barrier and get sold to a public company. The public company needs to show capital gains, so they buy each other out. Kill the estate tax, and income tax on dividends, and the need to grow goes away.

However, big government wants big business, as it's easier to control a few big businesses than a lot of small ones. Especially if the ruling class for both government and business interlock through Goldman Sachs, Harvard, Yale, etc.

19 posted on 09/12/2009 11:16:15 AM PDT by slowhandluke (It's hard work to be cynical enough in this age)
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To: Wolfie

True, but as has been posted earlier in this thread, the economic pressure is always for banks to get bigger and bigger, because big banks handle more accounts and can therefore leverage more attractive investment opportunities, and can lend out more money. That therefore attracts more investors and more borrowers, which in turn makes the bank more profitable and therefore bigger...its a circle that just goes up and up.


20 posted on 09/12/2009 11:21:14 AM PDT by Vanders9
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To: SeekAndFind
Despite Biddle's effort to precipitate a financial panic in retaliation, "Old Hickory" carried the day, and in 1836 the bank lost its public status. Without government backing, it did not last long. In October 1839 the bank suspended payments, and in 1841 it disappeared.

Yeah, and I believe a fairly severe depression resulted.

Ah, another bank-slamming piece by Newsweak. No surprise.

21 posted on 09/12/2009 12:52:55 PM PDT by what's up
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To: FromLori
A hundred years ago, people angrily compared the House of Rothschild to a giant octopus with its tentacles wrapped around the U.S. economy. Today it's the turn of Goldman Sachs to be likened to a "great vampire squid."

Idiots then, idiots now.

22 posted on 09/12/2009 9:06:19 PM PDT by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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