Wall Street Is Not
by Dean Stephens - November 14th, 2011
Occupy Wall Street? It would be much better to abandon Wall Street. Sarah Palin has summarized the errors of the Occupy Wall Street movement with her great quote, "They say `Wall Street fat cats got a bailout so now I want one too.' And the correct answer is no one is entitled to a bailout." Sarah Palin is right. However, just because the Occupy Wall Street participants are wrong does not mean that Wall Street deserves our support.
There is a delusion in the ranks of Republicans and Independents that is based on an outdated truth. Funding capitalism used to be the goal of Wall Street. That is no longer true. There is a lot of evidence that pretending to support capitalism is simply much of Wall Street's way of deceiving the public.
In recent years Wall Street has given nearly three fourths of its campaign contributions to Democrats who are socialist sympathizers, such as Charles Schumer, Kristen Gillibrand, Chris Dodd and Harry Reid. Most of the rest it gave to supporters of big government and big business, beltway insiders who sell our laws to Wall Street lobbyists, such as Mark Kirk and Richard Shelby. Few, if any significant campaign contributions go to people like Jim Demint or Paul Ryan who are proponents of free enterprise or small business. Even the temporary switch in the bias between the parties has not changed the preference for big government, big business supporters such as Barack Obama and Mitt Romney. Why does that not get more notice?
Their deceit is paying off. Wall Street's major firms are wallowing in wealth and profits. The rich Wall Street firms who were bailed out by the tax payers made more money in the time since Obama became President than in the entire eight years under President George W. Bush. Not that Bush was ever a real supporter of free enterprise. Bush was actually fond of the big government, big business Wall Street barons. His incredible quote after protecting them with bailouts, “I’ve abandoned free-market principles to save the free market system” still annoys me. What Bush really ‘saved’ was crony capitalist fat cats, not free markets.
Wall Street's record profits are coming at a time when small business is struggling, the economy is stagnant, millions are unemployed, and profits for most companies facing competition are nil. AIG, Fannie Mae and Freddy Mac are exceptions to the outrageous financial firm profits but that is only because they are tied to the home mortgage disaster. That fiasco was inflicted by government regulations. The traditional percentage of all profits made by the financial sector, 16%, has increased to 41%. Is anyone surprised that the percentage of profits earned by financial firms has soared while profits from businesses that produce goods and services have declined?
A perfect example of Wall Street logic is the Republican position on capital gains taxes. Big business, big government Republicans have abandoned the Ronald Reagan opposition to special tax rates, special deductions and special subsidies for special interests. Reagan equalized the rates for capital gains with the rates for income. He did this because his opposition to special deals for some was explained by the story of the plumber. Never heard it? It is a great story.
Two men graduate from the same high school. One becomes a plumber and starts his own small business. The other inherits money from his family. The plumber works hard and masters his trade. The heir invests his money carefully. After a few years both are doing well and make exactly the same amount of money. The plumber has created a number of jobs as his firm grew. The heir's investments are assumed to have done the same. If you truly believe in free enterprise, capitalism, you believe that they are receiving in income the fair value they each provide to society.
So why do Republican insiders argue the investor should pay lower taxes? Five of the current Republican candidates for President actually argue the investor should pay nothing in taxes. Ronald Reagan would be appalled at both that idea and what is happening in America. Under current practices, the plumber is paying a huge amount of money in social security taxes on his income, double the average employee, while the investor pays nothing towards social security. The plumber also pays much more income tax than the investor pays in capital gains taxes. Don’t forget, free markets gave them exactly the same compensation! Why has the Republican Party abandoned the common sense fairness and belief in free markets of Ronald Reagan and Jack Kemp?
Too big to fail is a euphemism for regulated quasi-monopolies, another example of how little modern Wall Street believes in capitalism. The overwhelming desire to create huge businesses and eliminate competition is the motivation behind Wall Street's focus on mergers and acquisitions, often encouraged by government regulations embraced by elements of both parties. Fat profits always flow to the newly dominant companies which then increase prices at their customer's expense. That's us! The claim that it 'could' strengthen competition is always the excuse that is trotted out to cover up their actual goals.
Another related example is when Wall Street engineered legal changes treating capital gains and dividends differently to encourage people to steer their money to growth stocks. The result was the dot com boom and bust. It correlates exactly with the creation of this advantage in 1997 and then its removal in 2003. How many fortunes were created and then destroyed by this manipulation of tax law? I bet the Wall Street crony capitalists made out on both ends.
There is additional proof. Wall Street created a useless form of investments called "derivatives" that are nothing but Las Vegas style gambling under a different name. Wall Street promoted the abandonment of Glass Steagall because it constrained conflict of interest practices permitting banks to mislead investors and depositors. Wall Street also led in the bundling of mortgages to mislead investors about actual risk, dramatically aggravated by sub-prime lending, and sold this junk at inflated prices. Wall Street welcomed Sarbanes Oxley because it handicapped small business from securing funding and favored the big business takeovers that Wall Street prefers. On issue after issue, the dominant Wall Street culture of today has favored big government regulation over free market competition. Their highly biased campaign contributions in favor of big government are not an accident. Conservatives need to take note.
In our opposition to the socialist goals of the Occupy Wall Street movement we must guard against trusting a Wall Street which has strayed. If we believe in individual freedom, it must start with free markets based on John Locke's natural rights to property, not the venture socialism of Barack Obama and the elements of Wall Street that back him. That Wall Street is not free enterprise.