How Wall Street Is Strangling The Economy

Tyler Durden's picture

Submitted by Adam Taggart via PeakProsperity.com,

This week, Chris interviews Time Magazine assistant managing editor and economic columnist Rana Foroohar about the findings within her new book Makers and Takers: The Rise of Finance and the Fall of American Business.

Eight years on from the biggest market meltdown since the Great Depression, the key lessons of the crisis of 2008 still remain unlearned — and our financial system is just as vulnerable as ever. Many of us know that our government failed to fix the banking system after the subprime mortgage crisis. But what few of us realize is how the misguided financial practices and philosophies that nearly toppled the global financial system have come to infiltrate all American businesses, putting us on a collision course for another cataclysmic meltdown.

Drawing on in-depth reporting and exclusive interviews at the highest rungs of Wall Street and Washington, Foroohar shows how the “financialization of America” — the trend by which finance and its way of thinking have come to reign supreme — is perpetuating Wall Street’s reign over Main Street, widening the gap between rich and poor, and threatening the future of the American Dream:

There is this fundamental dichotomy in the economy now where, if you are well off, you're doing better than you ever have before in history. But the majority of Americans, the majority of workers in this country, haven’t gotten a raise in real terms since the early 1990’s. Many people in the working class, the minorities haven’t gotten one since the late 1960’s. That's a real problem in an economy that is 70% consumer spending, because at some point the math starts to not work. If people don’t have more money they can’t spend. So we get these underlying growth problems.

 

My book is trying to look at one the reasons behind that. And I’m arguing that it is that the financial markets themselves are no longer supporting business growth.

 

The size of the financial sector --which includes not only banks, but hedge funds, private equity funds, real estate trusts, the mortgage market all the parts of the economy that basically move money around the economy -- has more than doubled since the 1980s. So we've got a financial sector now that creates only 4% of the jobs in this country but takes 25% of all corporate profits. That's a lot of economic oxygen that's being taken out of the room. What are the consequences for this? Well, one of the consequences is slower growth. Why is growth slowing? Well, in part because the whole model of banking has changed. The killer stat in my book is that there's a lot of deep academic research to show that only 15% of all the money sloshing around in American financial institutions ends up invested in Main Street business. So where is the rest of it going? Well, it's being used to trade against existing assets, stocks, bonds, houses -- it's doing something entirely different than what the banking system was set up to do, which is to take our savings and funnel them through financial institutions into business investments. Those businesses then grow and create jobs. When you only have 15% of the money in the markets doing that, you've got a problem.

 

The financial system, the whole point of it, is supposed to be that the banks will allocate capital to places where it is most productive. That's entirely broken now. If you look at the way money is being funneled around this closed loop of the financial system itself enriching more or less – and I’m being generous here – the top 10% of the country which owns 80% of the asset base stocks, bonds, houses, that's a bubble that is enriching just the wealthy while not actually creating real underlying growth. One of the things I must say that has been fascinating as I have put this book out there – I have gotten calls surprisingly from a lot of financiers who are very interested in the thesis because they recognize that at some point that starts to undermine their portfolios. Because sooner or later, everything that happens on Wall Street connects back to Main Street and I think we're at that tipping point now where you're going to start to see a market correction. We've had markets at record highs while Main Street has been stagnating and I think that we are at a turning point: these markets are going to eventually break.

Click the play button below to listen to Chris' interview with Rana Foroohar (37m:42s):

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pathosattrition's picture

Soon, the stranglers become the strangled

santafe's picture

Just like the American Dream became the American CURSE.

http://goo.gl/keHdpZ

Eeyores Enigma's picture

Gee! this sounds like another example of how socialism is BAD!!!!!!!!!!!!

Oh!.... Wait a minute..... this is the opposite of that...WTFFFFFFFF!!!

doctor10's picture

In a properly ordered society, finance is supposed to SERVE the business sector-not BE the "business sector"

 

In the 1960's when the Feds decided to fund the Vietnam War, the War on Poverty, AND place men on the moon, they needed to bend the entire effort of all American Business toward finance to generate the credit lines required to do all that.  In so doing they lauched an intergenerational financial torpedo which has taken out all other competition for credit by shutting down all other business in the country.

 

 

nakki's picture

Who could have seen this coming? Centralization and consolidation creating economic stagnation.

Quick more QE and consolidation

ThrowAwayYourTV's picture

Haha! Not Chris Martenson again.... I actually believed his "Peak Oil" fear mongering 10 years ago, now we're swimming in it.

So now he expects me to follow this crash course? Fool me once, shame on you. Fool me twice, shame on me.

Dickweed Wang's picture

I actually believed his "Peak Oil" fear mongering 10 years ago, now we're swimming in it.

 

"Peak Oil"!!  LMFAO!! 

Besides the current glut of oil world wide, the Green River Basin in NE Utah/NW Colorado/SW Wyoming has 40% of all the proven reserves of oil in the world . . . about 4 TRILLION BARRELS and that oil is virtually untouched.  Don't believe me?  See this:

https://www.youtube.com/watch?v=5xJ8AdqgZBM

and this:

https://www.youtube.com/watch?v=pp68Fx_vKgA

 

Besides the oil in that area there are an estimated 800,000,000 tons of anthracite coal that is easily accessible . . . that's the equivalent of 3,832,000,000 barrels of oil.

 

mistral's picture

That Green River Basin crap is kerogen - not tight oil.

Dickweed Wang's picture

That Green River Basin crap is kerogen - not tight oil.

 

Sorry pal but you're wrong on that one . . . it's high grade shale oil at about 25 bbls/ton of shale.

crossroaddemon's picture

I do a lot of work out around the Bakken formation, and I know lots of people who work in shale. Best case scenario that stuff is expensive a fuck to get out of the ground. Once we reach a point where all of our oil is shit like that gasoline for private consumption will simply be out of reach for a lot of us.

chunga's picture

It turns out we're swimming in "Peak Fraud". Actually that name for it is no good because it doesn't seem to ever peak out; the financial expert retards figured out how to create it and jam it down everybody's throats.

 

/as always, no offense intended for normal, decent retards

Axtrax's picture

"Peek Oil" is not about how much you have at this very moment above ground. It is about the capacity to pump it as well as how much of the known reserves are still left in the ground. Those two factors combined can result in a very steep slide down the right side of that parabola if pumping capacity and demand are high enough. The outcome is then an extreme shortage of fossil fuel based energy versus our need for it to keep our civilization chugging along at its current pace. Bottom line is there is only so much left whatever that amount is. I'm not looking forward to the tail end of that available supply curve.

NoWayJose's picture

And beyond Wall Street, think of all the other non productive jobs that produce little or nothing in Amerika!

venturen's picture

there are more of us than them...just saying

VWAndy's picture

 Its not just wallstreet. Regulators,law enforcment,the fake inviornmentalist,courts,teachers and a host of others too.

 

VWAndy's picture

 Bring back the rule of law and main street will recover.

1980XLS's picture

Bring back the guillotine (for the banksters) and the world will recover

VWAndy's picture

 Interesting thoery you got going. It seems plausible to me.

robnume's picture

First time I heard the term "financialization was in...wait for it...1984! The next year, 1985, I read the acronym FIRE in Newsweek ragazine. Been waiting on tenderhooks for the fall of "financialization" for over 30 years. Andso-called 'economists' couldn't see the 2008 collapse coming?  Saw it coming when my home mortgage got sold again and again and again back in 1999! Murrican's used to have "mortgage parties" - I remember my mom's parent's having one - to celebrate their unencumberance to the local bank.Youngsters, TPTB will steal the fucking shirt literally off of your back if you don't work TOGETHER to kick these fidouchebags off of the planet. You can do it. WE WILL HELP.

robnume's picture

Also, do everything in your power to STOP HB1 and HB2 visas. We need to make sure that Murricans have fair access to jobs first. TPTB r robnume!

Jack Oliver's picture

The old American dream is dead - There is a NEW American dream called SERVITUDE !

Cabreado's picture

Wall Street is the beneficiary of a corrupt Congress.

Does anybody remember Congress?

With each passing day, another few don't even know there is such a thing.

ETA: Sorta like Jack Oliver ^

hedgiex's picture

Yawn! What's new ? Pompous and pretentious in assuming that the fight club is a retard club.

Reichstag Fire Dept.'s picture

Wall Street turned Main Street into Sesame Street, that's why Goldman calls us Muppets. :(

ISawThatToo's picture
ISawThatToo (not verified) Jun 13, 2016 10:05 PM

Banbait #185

 

Leverup-Street is but a sore on our society's ding-dong. The virus is the problem.

 

The US Supreme Court will soon be made up of 44% of the virus. Better wear a condom.

 

geeves's picture

Sounds like the author is dealing in the plane of effects rather than in the plane of causality.  Yes the mega banks are corrupt, but it doesn't sound like much thought was given to how this came to be.  For example not much attention seems to be paid to the Fed by this author.

This type of work which just focuses on the effects can be dangerous since it creates a platform for ulterior agendas to ascribe their own causes to these problems that distract and push people in the wrong direction.

crossroaddemon's picture

The fed is an effect, too. You're not going deep enough. The system itself is rotten to the core.

Richtus Heb's picture

Makers and Takers, but most of all Fakers - The Rise of Finance and the Fall of American Business

lucky and good's picture

Both Wall Street bankers and the government, including the Federal Reserve, hold great sway over the economy. When forced to ask which is the worse of these two evils the answer is very troubling. Government wins hand down. We elect politicians to lead, protect and guide us, we do not elect or appoint bankers.

Years ago President Eisenhower warned the American people about the Industrial Military complex, but nobody warned us an even more evil alliance that of the "Financial-Political Complex." The article below explores this beast and how it came to be.

 http://brucewilds.blogspot.com/2016/06/lessor-of-two-evils-wall-street-bankers.html

 

crossroaddemon's picture

Here's another way to articulate that, and in my mind it's where the whole libertarian ideology stumbles. Large concentrations of wealth are even scarier than government.

crossroaddemon's picture

Oversimplification. Gross oversimplification. The wage economy is going in the toilet and even if we wanted to stop that from happening we couldn't. You could end the fed tomorrow and it wouldn't change a fucking thing. Know why? Three things. First off, increasing cost of energy inputs. More and more of remaining energy reserves are tough, expensive plays. Meanwhile we're sitting on a whole damn global infrastructure built on the assumption of dirt cheap energy. Doesn't matter how much of it there is; the end of cheap is going to be the end of life as we know it. 

Secondly, overpopulation. In a nutshell we have far more people than the industrial economy is EVER going to be abe to keep busy. And if you think you'll stifle that with protectionism forget it; the powers who like things the way they are have us hopelessly outgunned. Global wage arbitrage is going nowhere.

Finally automation. Even if you solved problem #2 this one is still fixing to bite you in the ass. And don't even give me any bullshit about minimum wages; have you looked at the cost benefit analysis'? The damn fast food robot kiosks would pay for themsleves if the wage was less than $5.00 an hour. Prices being what they are $5 simply isn't worth getting out of bed for.

This is a good thing... the more people get pushed out of our coercive wage slave economy the more underground systems might start springing up and we might actually have a prayer of building something better over the course of a few generations. All of you Trump-heads forget it the change will NOT happen from the top down. But if you think the traditional economy is something that can be fixed forget it. The new normal is going to equal a lot less for everyone unless you are one of the chosenoids, and there is absolutely no stopping it.