WALL STREET: FINANCIAL INVESTMENT VS REAL: IS CAPITALISM BROKEN?

The stock market formerly was a place where savings were invested in corporate growth except for times in the past, like the events leading up to the Great Depression - when unbridled speculatio and greed ruled. Many corporations, still alive today, were started by Wall Street Financiers.

 Financiers helped innovators like Thomas Edison and Henry Ford obtain the capital they needed to build their companies and sold stock to raise capital. Shareholders understood why they were investing and knew there were risks that could not be guaranteed. Shareholders accepted risk investing in ideas or men who had ideas – which if successful would result in expanding companies which produced products in demand, and the companies along with their stock price, and dividends would grow in value.

So the Stock Market used to be a market which raised money for and sold shares in new companies or was a market to trade in existing investments called securities - which could be either bonds or stock.

And the process works when investment is real rather than financial.

Real investment produces improved, more productive, and more innovative plant and equipment which lead to increased GNP. Real is different than financial, because financial investment may only be reflected by a larger or lower personal income or net worth which is not translated into economic growth.

We have lived in a forward looking economy, and counted on the free market myth to push everything up. Personal savings for some time have not been invested in the growth of corporate values translated into dividends for shareholders. And corporate profits, for too many years, have not been invested in corporate growth, but have been paid out to CEOs and upper- level executives at an accelerated pace for the past thirty years, while necessary cash was borrowed. This equation works as long as everything goes forward, meaning up. So, as investments became more financial than real our markets turned into casinos where shareholders bet on the direction of stocks, or indexes, or anything that could be securitized to bet on.

A similar misdirection of savings occurred in the late 1920s when the stock market soared and “investors” gobbled up stocks on margin (LEVERAGE) in order to have a larger- than-life position in the market while stock prices soared due to unbridled greed and unfettered speculation.

When Wall Street’s stock market specializes primarily in complex (too complex to explain therefore too complex to understand) financial instruments, real investment is lost is the frenzy of an infinitely speculative, feverish and dogmatic pursuit to manufacture fees and bonuses.

 The stock market is now for the benefit of Wall Street Godfathers, who have little concern for what happens to investors’ savings except for the conversion which has taken place for many years – the conversion of investor savings into Wall Street Godfather family pockets.


Clearly - capital formation has been replaced by fee formation. And “financial masturbation” reigns supreme. This is a concept I raised in Invest for Success...which holds that masturbation is OK as long as you do not want to create anything real, but if you expect to achieve real financial results of substance in the future then it is not the right approach, and as I observed in 1990: “If the stock market becomes an arena of financial masturbation, then our economy suffers, as real investment is lost in the mad scramble to shuffle dollars.”


All the firewalls are gone. Wall Street achieved a great victory at the expense of our economy and the financial lives of millions of Americans.  Banks were the cohorts of Wall Street in the 20s and since 1999 (aided and abetted by Congress)   have been joined at the hip again.

Shortly before the book’s publication the OWS Movement began. It is not against Capitalism, but against how the misuse of Capitalism has caused so much financial displacement and anguish. Adam Smith, author of “The Wealth of Nations and a professor of Philosophy , postulated that Capitalism was supposed to be of benefit to society as a by product of a Free Market economy. However, the freedom has clearly been abused, because unfettered Greed knows no boundaries.

So is capitalism broken?  This is self-evident. 

Answers to correct the misdirection of capital from real investments to nothing but egregiously leveraged financial innovation to produce “structured investments” for fees are known. If Congress has the will and we the people vote out all who do not get it.

Our Government must find the will and integrity to rebuild the barriers against Greed by separating the banks from the investment banks; by restricting the ability to form bank holding companies (which results in down sizing) and the will to require banks to be lenders again, and disallow the ability for any bank to issue (to contrive is illegal) complex instruments.

Occupy has started the right conversation.  And there is a growing of fear of this desperately needed conversation and of OWS. which will not go away. And the reasons should be clear to anyone who cares about truth and the common Good and truth. For Wall Street it is the fear of losing their money machine; for Congress losing the hands that feeds, and for Big Business losing the ability to feed Congress.

For anyone that cares about the common good there is nothing to fear.

Excerpts from:  How We Got Swindled by Wall Street Godfathers, Greed & Financial Darwinism ~ The 30-Year War Against the American Dream; foreword by David Satterfield former business editor of the Miami Herald, 2 times Pulitzer Prize winner.  To know more: www.howwegotswindled.com