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General Interest

DOPOTO REPORTS: HEDGE FUND THUGS AND OTHER SCAMS

The Department Of Pointing Out The Obvious (DOPOTO) has been, like the rest of the world, following the disturbing events in recent years in the financial industries. Senior analysts and researchers here at The Department have been busy attempting to perform our only function, noticing what is as plain as day, but our efforts have been severely hampered by an industry that has over the past 50 years turned a very straightforward business, the relatively simple math of managing other people’s money, into a complex labyrinth of get-rich-quick schemes, over-under Las Vegas-style wagers and P.T Barnum scams.

For most of history, banks and investment houses were run by careful, somewhat dull and unimaginative men, exactly the sort of person you want to be in charge of everyone’s money. They invented nothing, manufactured nothing and took no wild risks with money that did not belong to them. Bankers just weren’t that sort. Their banks were safe repositories for the hard-earned money of people and corporations, and cautious lenders of money to individuals and businesses.

Investment firms invested their clients’ money in companies that actually produced tangible goods and services. Brokerage houses rated the financial reliability of publicly held companies, rendering an honest assessment of their performance, then traded their stocks based on these realistic evaluations. Insurance companies offered protection to companies and individuals against unforeseen calamities and natural disasters.

These various businesses in the financial sector rarely overlapped, since that would be akin to a manufacturer of bicycles dabbling in real estate or medical supplies, businesses that were not their area of expertise and a potential conflict of interest. The people who ran these companies made very good salaries, and  were considered wealthy. Not Henry Ford or Andrew Carnegie wealthy, men who founded gigantic industries employing many thousands of workers who manufactured hugely successful products, but very prosperous.

America in the early 20th Century was building the strongest economy the world had ever seen, but in 1929 the vast amounts of unsupervised available money proved too strong a temptation to unscrupulous stock market traders. They gambled recklessly with other people’s money, falsely inflated the value of stocks and purchased princely fortunes in stock for a tiny down payment, then sold them as if as if they owned them outright. Then one day someone asked one of these swells to pay up, so he asked the guy who owed him to pay up and that guy to look up the guy who owed him big tim, and so forth on down the line.

Turned out none of them could pay the piper. Next stop: The Great Depression, when nobody had money anymore. When this game of Russian Roulette blew up in everybody’s face in 1929, the worldwide economy collapsed for a dozen years and was a huge contributing factor to the events that led to the global catastrophe that was World War 2.

President Roosevelt was forced to reign in the financial industry, passing stiff laws and creating government regulatory agencies to enforce these laws. Like any regulations, they were made for their time and the available technology of the day, and sooner or later became outmoded and easily circumvented. New schemes like Hedge Funds were invented, risky gambles whereby multibillion dollar wagers are placed regarding the performance of the economy as a whole or targeted industries, wagers often at odds with the interests of their own country.

One such private Hedge Fund was granted access to Goldman Sachs’ private files of mortgages and allowed to assemble a portfolio designed to fail. Goldman Sachs them sold them to their investors as the best thing since Double Stuff Oreos, trading on their good name to peddle crap. Then the Hedge Fund guy bet then against the fund and made a billion dollars in a single transaction. Goldman Sachs also bet against their own product, cleaning up while their loyal customers tanked. If this sounds criminal, well, it almost is, and a civil judge and jury will soon decide one way or the next.

These questionable enterprises earn the managers of Hedge Funds billions a year for producing exactly nothing. Billions in capital that was formerly available to invest in the actual manufacture and sale of real goods was now off the market. This vital seed money of industrial capitalism was being used solely as chips in a huge poker game, changing hands repeatedly like a game of Hot Potato, except that every hand takes a little chunk out for profit until there is no more potato, hot or otherwise.

The Derivatives Market, once a financial tool to protect farmers from the vagaries of Mother Nature, became another popular high stakes game, and insider manipulation of information and widespread falsification of values made it a house of cards waiting for slight breeze, just like all the other financial outfits. In 2008 the wind blew hard and it was like the Big Bad Wolf huffing and puffing at the straw house. Someone had to pay for the damage, and it wasn’t the Little Piggies. It was the customers of the various financial companies, and the Federal Government, which basically means everybody pays for their greed.

Bank customers lost the interest-earning capacity for individual checking accounts and saw the interest on their savings accounts slashed from an average of 5.4%  to around 1.5%, while the executives who robbed them awarded themselves kings ransoms in bonuses from their customers’ money. Checking accounts now cost money to maintain, and banks entice customers who want to earn their accustomed 5% on their savings to invest in questionable new ventures like Money Market accounts and other financial products that they made up out of thin air for the sole purpose of generating large profits for themselves, whether their customers make a small profit or lose their shirts.

In this way even more money that was meant to be used to invest in products, infrastructure and services, and the society-sustaining jobs these products provide, was unavailable. It was tied up in what were basically multibillion dollar Three Card Monte games, where the sucker always loses to the sleight of hand artist. The profits and tax revenues that manufacturing and a gainfully employed work force generates disappeared into the maw of greed. Bank customers and small investors took it on faith that these long-established and reputable financial companies were looking out for them, when in fact they were actively sucking them dry and building vast fortunes without having produced a thing.

Every billion dollar fortune thus amassed represents thousands and thousands of individual workers who cannot get a job, provide for their families, pay their mortgages or contribute taxes to their nation. Society as a whole suffered for the greed of a relative handful of ambitious thieves. The careful, unimaginative and ethical people who used to run the financial industries were replaced by greedy thugs.

To point out the painfully obvious (our specialty), money has always been a powerful temptation for people. If it was not, there would be no such things as bank vaults or security cameras trained on the cash register at every convenience store. Passing laws to regulate the handling of everybody’s money is simply an acknowledgment of the obvious, that human frailty exists. Somehow we have allowed our financial industries to generate over 40% of corporate profits in America, profits that reflect no production whatsoever. This figure used to be less than 16%.

These businesses have become magnets to polished gangsters, thieves and scam artists, sucking available capital from the marketplace into the bank accounts of the very few at the expense of the very many. Passing laws against criminal activity is in the best interests of any society, and safeguarding the money supply from predators seems to be a minimal standard. Analysts at DOPOTO, while frustrated at the ability of financial charlatans to defy obvious description, have concluded that security cameras on the overflowing cash registers of Wall Street might not be a bad idea.

This was a report from The Department Of Pointing Out The Obvious.

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