Apropos of Robert Reich's pronouncement on the new finance bill just passed by Congress, I have to agree with him. Hold on to your hats, folks. The fun has just begun. The central question is, "Who do you think was on the other side of the bets in the recent debacle involving trillions of dollars in government bailouts?" In other words who were the counterparties? Why they were you, the little people who had pensions coming to them or 401(k)s. Why do you think the government bailed them out? Because they didn't want all the pension funds to fail. As pensions have become increasingly privatized, they are managed increasingy by ... you, and you're no match for the Wall Street hypertraders. Even the pension funds managed by (don't make me laugh) 'professionals' were hoodwinked by the Wall Street quants. Why do you think hedge funds made billions while the average guy's wages sunk through the floor?
Folks, I hate to tell you this, but we're no match for Goldman Sachs, Citibank and the rest. In this casino economy, they're going to win every time, and the average guy and gal are going to lose. Pension fund managers controlling billions of dollars like CalPERS that manages the pension funds of all California state employees like policemen, firemen and teachers relied (foolishly) on Wall street bond rating agencies like Standard and Poor's and Moody's to tell them which bonds to invest your pension money in. Of course, they only invested in AAA rated bonds, but the fly in the ointment was that the rating agencies rated junk as AAA, unfortunately, and the pension fund managers relied on them instead of doing their own research. So all those subprime mortgages that were securitized as collateralized debt obligations (CDOs) were a bunch of crap rated as AAA, and the pension fund managers were clueless. The "talent" on Wall Street outwitted the clueless. Isn't it written somewhere that the smart will inherit the world?
That's it in a nutshell. Whether it's a pension fund manager managing your retirement funds or you yourself with a 401(k), Wall Street is betting that it can outsmart you. They have computer programs whose algorithms can take advantage of minute swings and shifts in the Dow Jones Industrial Average, something which you can't do unless you quit your job and devote yourself to managing your portfolio. Even then, good luck! If even pension fund managers can be outsmarted by the quants, what chance do you have managing your own portfolio? Wall Street has sold you a bill of goods that the stock and bond markets behave in some sort of rational manner and that your best chance for a comfortable retirement is to invest your money with them and get a comfortable rate of return on your money year after year. Bernie Madoff was a babe in the woods compared to the Wall Street advertising industry.
This isn't what it's about at all. What it's about is going to a casino (Wall Street) and betting that you can outsmart the big guys - the casino itself. You're better off going to Pechanga and using your retirement money playing the slots. Wall Street is not betting against some remote and unspecified counterparty; Wall Street is betting against you whether you know it or not, and when the whole edifice comes tumbling down it will be up to you the taxpayer to bail them out ... again ... world without end ... Amen!
When you realize that investing on Wall Street is a game and that the odds are not in your favor, then it might make sense to take your money and put it elsewhere like maybe even under your mattress because you are the counterparty when it comes right down to it, and the reason the government was so eager to bail out the counterparties and give Goldman 100 cents on the dollar for all their bets is that it didn't want all the pension funds to fail. It didn't want the whole mutual fund industry and all the financial planners to fail. In the final analysis it wanted to have people continue to believe that it was in their best interests to keep placing their money on Wall Street.
