Facilitate the Rich, Regulate the Poor

While living in Japan in the early 2000s, I worked for what would be described as a “boutique” financial services shop. The shop was perhaps unique compared to similar shops in other countries (such as the United States) as the strategy was to introduce international (aka, offshore) investments. Only.

Clients were mainly expats living and working in Japan, but there were also a surprising number of Japanese clients as there aren’t many laws forbidding average Japanese citizens from investing offshore.

It was my first experience working in the investment world. And, without a doubt, it was the most educational job experience I’ve ever had. On several different levels, and for a variety of reasons.

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The experience was also what many would consider to be “old school.” It consisted entirely of on-the-job (OJT) training. And it was brutal. I had little experience or knowledge of the industry. In all sincerity, before taking the job I’d struggle with the differences between a stock and a bond. As well, I imagined that “capital markets” were probably just some fish markets in the Washington, D.C., area.

To be fair to myself, I’m being a bit facetious… but put a different way… I was pretty raw, like we all are when starting our careers.

I diligently studied the markets and the products the company brokered day in and day out. I studied teasers, PPMs, and prospectuses, followed currencies and commodities, and read all the latest (and greatest) books on the industry. I learned names like Jim Rogers, Barton Biggs, Ed Seykota, Richard Dennis, William Eckhardt, Alfred Winslow Jones, and George Soros. I learned about the good and the bad in the industry. And I learned things I had no way of anticipating.

By far, one of the most marked, disturbing, and unexpected lessons I learned (and more closely to the heart of this article) is that in the United States the rich are gifted all the means, all the options, and all the tools to help them produce (as well as maintain) wealth, while the middle and lower classes are stuck with casinos, the lottery, or corralled into expensive, underperforming mutual funds to help prop up the stock market for the upper crust of American society.

This is something that truly irritated me back then. Not only because I was new and starving for clients, but because I’m an American. I thought how ridiculous it was that many intelligent American expats were forbidden and/or shut out of the “sophisticated” investment club because they didn’t have at least US$1 million net worth or earn a minimum of US$250,000 per annum (the accreditation requirement). Here I was helping very average French, British, Japanese, and Dutch expats invest in products that I was not allowed to touch with my own money. And why? Because of some ridiculous policy that was nothing more than a ruse to give the appearance that regulators actually do something in the United States.

(Of course now it has grown above and beyond just this one policy and turned into all out war against expats with these new FATCA policies, which are unconstitutional and do nothing to stop such mega corporations as General Electric or Apple from funneling money offshore to avoid taxes… but that’s best saved for a later article.)

My suspicions about these regulations and the regulators grew exponentially after the financial crisis of 2007–08. How convenient a free bailout for Wall Street of epic proportions and not one single banker in jail—not one found guilty of mismanagement or malfeasance. During the savings and loan crisis” in the 80s and 90s William K. Black, a former U.S. regulator, helped produce 1,000 felony convictions, a 90% conviction rate, which was the greatest prosecution success rate against elite white-collar crime in history. Amazingly though, this recent past crisis did not see even one banker accused of misconduct. Moreover, not only did the Federal Reserve Bank re-inflated the bubble economy again, but re-inflated the same institutions, the same bankers, and the same products that got the world into the mess in the first place (What could go wrong, right?).

One popular phrase that I read and heard quite often during the crisis was, “Socialism for the rich, Capitalism for the poor!” Although I agree with this to a certain extent, it doesn’t quite describe the situation that clearly—I believe it’s missing an important aspect. I think to be more factually correct it should read: In good times, Capitalism for the rich, Authoritarianism for the poor, and in bad times, Socialism for the rich, and more Authoritarianism for the poor. Doesn’t roll off the tongue quite as nice, but definitely describes our “freedom for the rich” nation a little better.

Now obviously, my exploration of this situation might be debatable and even objectionable for those who like to consider themselves on the Left when it comes to business matters and finance—fair enough. Although I’m not out to make a political point. I’m just trying to show another angle regarding how and why inequality has exploded in the United States. An inequality that has grown absurd and, in my mind, has more to do with anti-freedom than with too much freedom.

This inequality recently has reared its ugly head once more, and it comes in the form of a whistleblowing case that the mainstream media, admittedly has not completely ignored, but certainly is trying to pretend it’s not that big of deal.

Carmen Segarra, a heroic, strong, intelligent and principled female lawyer who, while working for the NY FED, got fed up, pushed to the brink, so she went to a “spy store” and bought a tiny microphone to secretly record what she saw was not only, incompetence, but possibly criminal behavior between the NY FED and Goldman Sachs.

What she captured, according to famous Wall Street critic and author Michael Lewis, was the “The Ray Rice video for the financial sector” (Ray Rice, a professional American football star, was recently caught on video assaulting his girlfriend and is now out of a lucrative career.)

In my opinion, it just proves my point that while you and I would be thrown in jail if we tried to do almost anything the big banks get away with on Wall Street, the banksters not only walk free, but rake in millions of dollars in bonuses each quarter and get assisted, not regulated, by the regulators. The same folks that try to prevent us serfs from investing into anything that doesn’t boost their stock portfolios for our “own protection,” are the same folks that allow Goldman Sachs and JPMorgan to do whatever they want as long as they keep making themselves and their clients filthy rich—and maybe open the door for private sector careers for some of these regulators at a later date.

America is not an honest market based economy any longer. It’s about making and keeping a few people at the top extremely wealthy while standing on the backs of the middle class and poor to make sure competition is kept at a minimum… and to me, this is the only perspective that makes sense now. When regulators, policy makers, and our elected representatives are only concerned about repressing and sucking money from the poor and middle classes while classifying the rich as sophisticated and above the law, it’s the only angle that doesn’t buy into more of the same—same routine of more laws, more regulations, more government, and more dystopian leadership that ends up hurting us rather than the real culprits.

Whatever our current economic system is, it’s certainly not capitalism and it’s certainly not free. I know capitalism’s detractors will use this latest revelation as another stone to cast against the system to somehow aggrandize their own ideologies and agendas, but private institutions and corporations controlling government and regulators via cronyism, fear, and culture sounds more like a contorted version of Mao’s China or Stalin’s Russia. It certainly doesn’t mirror competition, entrepreneurism, privatization and price discovery.

Ms. Segarra’s secret recordings expose the pure insidious and incestuous relationship that US regulators have with the wealthy and their institutions. They expose once and for all that if you’re not wealthy, or work for the wealthy, then all laws and regulations apply. This is something we as Americans all inherently know, but never had any real proof of the injustice… until now.

The obvious question is, what next? What will come of Ms. Segarra’s recordings and her story? A big broom and a large rug, perhaps? Maybe a strong populist politician will pound their fist only to direct more regulations and policies towards the non-exclusive crowd? Hasn’t this been the American way over the past few decades though?

Pardon me for my pessimism, but I find it difficult to believe that a government filled with lawyers, lobbyists, and representatives for the rich, by the rich, and ex-banking elite will do anything for the good of the American electorate other than heap on more government inefficiency and jackboot style regulations to tighten the noose already around our necks.

We have certainly grown accustom lately to punishing the masses in favor of the few and it’s very doubtful it will change anytime in the near future. The “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money” (Goldman Sachs) and its facilitators will keep the game rigged as long as the game can be controlled—and the game will continue to be controlled until we start supporting whistleblowers like Carmen Segarra.

And this you can bank on…

  • Fish

    The great asset casino is on its last legs. If you didn’t make an incredible amount of money in the last 20 years or so you won’t anytime in the near future. The Fed has to take away the punch bowl. Rates will rise and with it a world depression. There will never be a China or India growth model quite like we’ve seen. The rest of the frontier economies are a joke in comparison. Best for the young to find a trade or a solid high-tec skill and be happy with just getting by because your little credit bubble is going to burst with or without regulations.

  • Not Yours!

    Less Freedom = Less Corruption

    Freedom should be synonymous with collectivism not individualism.