Should a Stock Market Decline Stop Us From Breaking Up the Giant Banks or Fully Auditing the Federal Reserve?

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As of 2007, the bottom 50% of the U.S. population owned only one-half of one percent of all
stocks, bonds and mutual funds in the U.S. On the other hand, the top
1% owned owned 50.9%.

From
the San
Francisco Chronicle:

Half of America has
only 0.5% of the stocks and bonds

Source:
Institute for Policy Studies

(Of
course, the divergence between the wealthiest and the rest has
only increased since 2007.)

As I noted
in January:

Vincent Deluard - a strategist for
TrimTabs Investment Research (25%
of the top 50 hedge funds in the world use TrimTabs' research for market timing) - says:

We've
never seen this before – such a huge rally, and the little guy is out.

In other words, the stock market rally is due almost
entirely to hedgies, pension funds, banks and other institutional
investors, and not every day
investors.

***

TrimTabs notes that small investors pulled out
$14 billion net from stock mutual funds from the beginning of last year
through mid-December, on top of a net $245 billion withdrawn in 2008.

Given
that, at the end of September, individuals held 80% of the $19
trillion in stock in U.S. companies, both private and public -
according to the Federal Reserve (see this,
for example)- recovery will not happen so long as the little guys are
sitting on the sidelines.

TrimTabs notes that most of $592
billion taken out of money market mutual funds last year has gone into
bond and bond-hybrid funds instead.

No wonder David Rosenberg is
saying:

• "People have been lured into two bubbles seven years
  apart, and for a lot of them it's over."

• "The bulls
  say if the market is up this much without retail investors, just watch
  when they come in, but it isn't going to happen."

• Investors
  who have not been spooked or angered by the market are probably too
  poor to buy anyway.

Many people say that
keeping the stock exchange up is important to maintaining people's
wealth. But since the bottom 50% of Americans don't have much skin in
the game, and the giant prop desks are probably doing most of the
trading, the stock market really doesn't affect most Americans very
much.

After Hank Paulson initially asked for $700 billion to bail
out the banks, Congress refused. Then the stock market tanked (and
Paulson said
there would be martial law unless TARP was approved), and Congress
gave Paulson his bailout. They said they had to do it, because their
constituents were being hurt by the stock market downturn.

As I
pointed
out last November, there are a lot of millionaires in Congress:

A
report
by University of California, Berkeley economics professor Emmanuel
Saez concludes that income inequality in the United States is at an
all-time high, surpassing even levels seen during the Great Depression.

The
report shows that:

• Income inequality is worse than it has
  been since at least 1917

• "The top 1 percent incomes captured half
  of the overall economic growth over the period 1993-2007"

• "In the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth."

As
others have pointed out, the average wage of Americans, adjusting for
inflation, is lower than it
was in the 1970s. The minimum wage, adjusting for inflation, is lower
than it was in the 1950s. See
this.

On
the other hand, billionaires have never had it
better (and see this).

Of
the 535 members of Congress, over 44% - 237 to be exact - are
millionaires. Fifty have net worths of at least $10 million, and seven
are worth more than $100 million. By comparison, around 1% of Americans
are millionaires. There is no other minority group that is as
overrepresented in Congress. See this.

Indeed,
Herbert argues
that the real reason that Congress approved the TARP bailouts is that
their money was on the line. In other words, they had a lot of skin in
the game, and so they voted to bail out their own assets. But they
just pretended it was for the good of the American people.

Whether
or not Herbert is right (Paulson did pull a bait-and-switch),
the information discussed above makes for valuable background for
looking at the proposed reform legislation  and the stock market.

Specifically,
I have seen many questions on well-known financial sites asking whether
today's plunging stock market is related to top Senators' decision
today to audit
the Federal Reserve and break up the giant banks (and see this).

I
have no idea whether there is anything to this question. But I do know
that the economy can
only be stabilized if the history
of what happened is fully revealed.

And the Fed is an
important part of what happened.

And I know that the
economy can only recover long-term if the giant banks are broken up.

So
ignore the short-term stock market scares. Fully audit the Fed and
break up the mega-banks ... or the economy will never really recover.

Comments

[Grand Supercycle]

MAY 1st :

"The weekly DOW chart shows an expanding wedge indicating a significant move is probable. This remains an overbought bear market rally and the uptrend could falter at any time"

http://www.zerohedge.com/forum/latest-market-outlook-0#comment-326767

[JW n FL]

The reason only the AAA rated corp's are making money is because they are feeding at the 0% Fed Window... and thusly on themselves... which is not sustainable, but the market gets pushed upwards and the little guys will be suckered into coming back in at which time the sell off will occur...

Casino economics? not really, but yes really all at the same time.

Things to come... *************** see below *************

Exclusive Sneak Peak: NYSE Euronext's New US Datacenter

Here's an exclusive sneak peak inside the new NYSE Euronext datacenter that is under construction in Mahwah, NJ. Earlier this spring, Wall Street & Technology had an insider's tour of the facility. The site, which will open later in 2010, is enormous. It's larger than a World War II aircraft carrier and is future built, meaning there is room to expand (both physically and in terms of using more power). There are 67 miles of conduit underneath the data center -- enough to stretch from 11 Wall Street (the home of the NYSE) to Mahwah and back. The site also has 28 megawatts of power, enough to power 4,500 residential homes. And to top things off, the building's main hallway is large enough to drive a truck through (literally). The data center will soon house all of NYSE Euronext's US exchange matching engines and is equipped to collocate all of the exchange's customers in a secure, low latency environment. Take a look at this sneak peak into the future of NYSE Euronext.

Editor's Note: Later this fall, when the data center is fully operational, WS&T will bring you a full photo gallery of all of the exchange's features and innovations.

http://wallstreetandtech.com/photos/NYSE-Datacenter/index.jhtml;jsessionid=3ZNNVVGUDKIMZQE1GHPCKH4ATMY32JVN?cid=nl_wallstreettech_daily

Who needs the little guy with... ************** see below! ******************

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.

?  U.S. government's maximum legal debt is $9 trillion

?  U.S. mutual fund companies manage about $12 trillion

?  World's GDPs for all nations is approximately $50 trillion

?  Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion

?  Total value of the world's real estate is estimated at about $75 trillion

?  Total value of world's stock and bond markets is more than $100 trillion

?  BIS valuation of world's derivatives back in 2002 was about $100 trillion

?  BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion

http://www.marketwatch.com/story/derivatives-are-the-new-ticking-time-bomb?pagenumber=2

And.... of course the lobby is very well funded... NOT the little guys Lobby of course... the multiple hundred Trillion dollar derivatives Lobby, is well funded... read below (as a start for most of you I hope).

If Gensler were to get his way, "all transactions in standard contracts" would "be required to be conducted on regulated trading facilities or exchanges."

The House passed a bill on December 11 that would increase transparency somewhat but that does not, in Gensler's view, go far enough.   He charges that lobbyists from the Chamber of Commerce and the National Association of Manufacturers managed to keep end-user exemption.  He proclaimed, "Corporate America is on one side of the debate, I’m on the other."  But he also proclaimed that "It is the Wall Street banks that benefit from the so- called end-user exemption from transparency, not the businesses that use derivatives," which would seem to indicate that he has a different idea of what's good for business than the people who run said businesses.

This is a situation where the American public has no position on the issue — indeed, the vast majority have no idea there even is an issue —  and in which the interested parties will therefore dominate the debate. Given the way our system works, it appears Corporate America will get their way, at least for now.  They've moderated the House bill and it's virtually inconceivable that the Senate will move it further in Gensler's preferred direction.

http://www.acus.org/new_atlanticist/derivatives-market-20-times-size-american-economy

So... Little guy's or main street... nothing but Tax Bills and big boys... who use our tax dollars to lobby against us... winning and winning big... Thank God the Sheepeople have been dumbed down and can not grasp what is going on!

The Banks are using profits to pay for their Lobby? not the 0% Fed Window?

http://www.wired.com/threatlevel/2009/08/bank-lobbyists/

**** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****

http://online.wsj.com/article/SB124640640747376775.html

So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?

http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_2008

[toathis]

YES. BLOCK IT! SHUT IT DOWN.

Keep the FED secret= Keep the American people alive

I do not want Mushroom clouds over American cities!

[tony bonn]

to answer the article title the answer is emphatically no....in fact such events as large stock market declines should accelerate said audit and commence the break-ups as sound financial management....just as financial managers advise that investors distribute their eggs among multiple baskets, so tbtf/tbts status should trigger breakups to undergird economic probity and stability.....

[Strider]

I have to call Bullshit on this  article George. If this was true why would the 95% majority ever sell ? Why doesnt the stock market just float on the ceiling like a helium balloon if that was true? Are you saying that this is all a farce perpetrated by brokers for fees?

[earnyermoney]

"If this was true why would the 95% majority ever sell ? Why doesnt the stock market just float on the ceiling like a helium balloon if that was true?"

Until you sell you have "paper" profits. The oligarchy, D.C. and Wall Street, need the "suckers" to purchase all of the turds in that large sack slung over their shoulder.

[BlackBeard]

Those statistics are misleading.  Lots of middle America owns stock through shitty pension funds and 401Ks.  That's not to say that we shouldn't audit the fed.  we really really should.  Unforunately, the bill's been molested and the kaufman-brown bill shot down. America's been bought, but not paid for.  We're so fucked.

[CitizenPete]

S.604 SELL OUT in the Senate

While everyone was staring at the big V on the screen and scratching their naughty bits wondering WT freek was going on... the one hope in the Senate who was gaining support with the help of public pressure SOLD OUT TODAY.

At reported by TPM:

In order to allay some of the White House's and the Fed's concerns, Sanders has agreed to limit the scope of what the Government Accountability Office would be allowed to audit--but his plan will still require thorough review of all the Fed's emergency lending, beginning December 1, 2007.

http://tpmdc.talkingpointsmemo.com/2010/05/sanders-fed-audit-amendment-likely-to-prevail.php

The bankster boot licker Rep. Watt from the House probably wrote the text for Sanders. 

We almost maybe were kinda going to audit the FED maybe.

Your owners were not pleased at this kind of nuisance -- now that you have been bitch slapped back to into your miserable hole -- get back to paying your taxes and shut the F up.  Audit THE FED?  Humpfh!  You really don't know who your messin' with. 

[4shzl]

Correctomundo.

"If you don't change this instantly, we'll have to declare martial law by nightfall!  And it will be ALL YOUR FAULT!!!"

Works every time . . .

[jp]

If they want to get elected in 2010, guess what they must do?

[jp]

Not only no, but HELL NO!!!!!

[Common_Cents22]

How is the individual defined?  Individual investors trading their own accounts?

More and more individuals have put their money in "professional" hands, concentrating pools of money but they still feel affected by the gyrations of the market. 

[Strider]

 I know a guy in the top 1%  , billionaire, that doesnt believe in the stock market , its a carnival sideshow to him, not a place to put real money just to give it that ferris wheel ride simulation. Just who are these top 1% ? The banks?

PS: he sells commodity futures

[b_thunder]

The 0.01%, the ultra-high net worth have all the money, but they don't spend most of it.  After all, how many Cessnas and Maybachs does a billionaire need?  The same is true to a lesser degree for the top 1%

Bottom 90% don't have any money, and they go into debt.  So our "consumer" society is based on the backs of 9% (between 90% and 99% on the wealth scale) , but many of those also are deep in debt. 

This simply could not continue, because most people got too much debt, and resulted in a mini crash.  The only solution is more equitable redistribution of the GDP pie, but no, the solution the Gov't and the Fed came up with was to borrow more $$, and print more $$, most of which was shuffled to the mega-wealthy in exchange for worthless mortgage paper.  And now we have it: the bottom 90% have 18% un- and under-employment, massive wage cuts, and 0% return on their savings accounts.  9% on top of them, mostly workign professional, have reduced incomes, loss of value of real estate, and higher taxes next year.  The top 1%, however, has more money than ever, but has no good place to invest it.  (what a problem to have!)  So they're piliong on into the "hot" markets - china, miami condos, BRIC, AAPL, GLD -  fully convinced that either they will make more money on their investments, or they will get bailed out once again. 

[merehuman]

+1000

[calltoaccount]

don't forget picasso

[theopco]

Pablo Picasso was never called an asshole

Not in New York