A Sheriff on Wall Street

21 May

When the European Union threw money at the euro to support it in the face of financial crises in Greece, Spain, Portugal, and elsewhere in the region, global stock markets rose. This was not unlike when the Bush and Obama administrations poured money into Wall Street’s coffers, propping up the Dow and NASDAQ.

But this week, after Angela Merkel’s government led the way to EU financial reform by proposing limits on hedge funds and (gasp!) taxing financial transactions inside the EU, the markets tumbled. Add to this, the U.S. Senate passed much needed, but much watered down Wall Street reform, and the stock markets went into full retreat.

Why does reform, rules to make the markets more stable, more fair, cause them to fall?

The answer’s simple: criminals are running the world’s financial system and crooks can’t make money when the game is more fair.

The market makers at Goldman Sachs, Deutsche Bank, Barclay’s, and other firms don’t know any better than your neighborhood banker how to make money on a level playing field. Only when they can tip the odds in their direction can they make a buck, just like the folks at the Mirage or Harrah’s in Las Vegas. Wall Street and London’s City firms are dead set against reform because it takes away some (though far from all) of their advantages. So, they’re pulling their money out because they can’t determine yet how to win without a built-in edge.

Think of it as the old Wild West. When criminal gangs are running roughshod over the community the citizens hire a sheriff to bring law and order to the town. Financial reform is that sheriff and the crooks are getting out of Dodge. But if the sheriff leaves or gets corrupted, they’ll be back.

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