Time to clean up Wall Street and protect Main Street has been the message from the White House, the Fed, the SEC, Capital Hill and the entire G20.
The decade that brought us the Enron scandal, the Madoff scandal, the subprime scandal, the Stanford scandal and the great bailout scandal has just two months to run and we have another scandal, the Rajaratnam scandal.
The billionaire hedge fund manager has been charged with talking part in a $20 million insider trading ring that is alleged to have included people from Silicon Valley, Wall Street and even Moody's. No one has been found guilty in a court of law yet but the phone tapping evidence the FBI has released looks very strong.
Now the FBI and administration will use these arrests as evidence that they are no longer going to allow people in the financial community to get away with illegal acts like insider trading.
They could be right and the focus on white collar crime could be about to unveil more illegal activity. The problem for those on Wall Street who play by the rules is that after the last two years a very big part of the population just says this is typical Wall Street.
When the Madoff scandal broke, many said this could be just the tip of the iceberg. Then, Stanford and his gold helicopter where accused of very similar offences and people began to really lose trust in the whole system.
The Elephant in the Room
In Britain, I speak to lots of people who have seen their pensions destroyed as funds they had invested in always manage to underperform the market on the way down and way up, whilst the managers still take big fees.
I see the anger in America from the hundreds of people staying up late to watch European Squawk Box on CNBC World and emailing Geoff Cutmore, Steve Sedgwick, Louisa Bojesen and Rebecca Meehan to vent their anger at Wall Street and those they believe have brought their economy to its knees win either way.
This creates an environment where the likes of Michael Moore begin to sound like they have a point. I am neither a democrat nor a republican and do not have any political leanings in the UK. I believe Michael Moore is a talented documentary maker with a nose for publicity.
Stopping K-Mart selling cheap bullets was a highlight of his career for me but I disagree with his belief that there is systematic corruption from Wall Street to Washington that is behind the economic systems collapse, as his new film, 'Capitalism: A love Story' attempts to convince us.
No Conspiracy, Just People
Moore though believes that there is a high level conspiracy that is aimed at keeping the little guy down and the fat cats on top. A rich man himself, Moore misses a crucial point, no one is powerful enough or skilful enough to be running the world from behind the scenes as he suggests. There may be some titans of industry out there who believe differently but they would, like Moore, be wrong and should put the white cat down immediately.
As the Quant funds found to their cost, it is impossible to predict the future and all any of us are doing is making decisions which are, at best, well informed decisions. Any major company is operating in a complicated world they cannot control.
It is not neglect of the authorities killing manufacturing, it is cheap competition from China and the emerging world. The CEO of a media company cannot stop the way people consume content changing. Banks have lost billions but have to be big to compete in a market where others would be more than willing to use economies of scale take to their business.
There were winners, yes Michael, Goldman Sachs were winners, and losers like Countrywide and Lehman during the crisis. Whilst some made fortunes, the majority lost out and big business does have, via the lobbyists, power on Capitol Hill.
But if you think it is possible to control the world for bad, try changing the system and pushing change past Capitol Hill and one of the most divided political systems on earth, controlling anything is incredibly difficult. Was there any option but to bailout AIG and Wall Street when the world economy stood on the brink?
Whether Hank Paulson was wrong or whether Goldman are giant squids are not issues I will address today, but on the conspiracy debate I will only say there is greed, incompetence, criminals, success, hard work and intelligence in all parts of society but no one can control them all, no matter how clever they are.
Bad News for Stocks?
The Rajaratnam scandal will add to the skepticism which the vast majority of those who have been burnt over the last two years feel towards the market and those that want to sell them stocks, funds and savings products. Even the least risk-averse small investor has learnt that money sitting safely in a deposit account, whilst not very sexy, is safe.
The next few years will see America save more as individuals repair their balance sheets in the wake of lower house prices, smaller 401(k)s and huge uncertainty. This will mean lower spending and a time of austerity when Obama's administration is forced to make some tough choices on tax and spend to pay off the bill for the credit crisis.
Not a great environment for companies and not a great environment for their stocks. With the dollar weak and trust in short supply, more scandal is the last thing the stock market needs.
In 1987 it was claimed stock options would reduce the risk of those trading equities. In the late nineties it was claimed the internet was a new paradigm. This decade lots of people who should have known better believed that while house prices always fall at some point, this time was different. CDS markets would protect you in a crisis...
It will pass and there will be another bull market. If you want to invest in the market, do your research, diversify your portfolio and be prepared for the 'once in a generation events' that happen about once every 6 to 7 years. There are many sharks out there, if you want to go swimming with them know what you are doing.
Anyone for a new green technology start-up out there?