Is Wall Street good for the country?
Wednesday, Dec. 12, 2007 at 10:38am
Yesterday Wall Street threw a hissy fit when the Fed only cut the federal funds rate by a quarter of a point. The market took a header. People were disappointed that money wasn't quite cheap enough to kick start the deal machine. Deals are how lawyers and investment bankers and security analysts and brokers and the entire gangling financial mega-organism of mercantile capitalism gets paid and keeps things interesting. So everybody was very disappointed. The specter of recession looms. Loans are too hard to get. We need to loan money, whether the recipient can really pay it back or not! No, wait. That's what got us into this situation in the first place. Still, what a bunch of party poopers at the Fed! We wanted the jumbo cut. And we got the weenie.
Some analysts wonder about the wisdom of any interest rate decrease at all. "I think the Fed is prescribing aspirin for a cancer patient," one told the New York Post, which in case you don't know it now owns the Wall Street Journal so it's time to stop making fun of it's credibility, probity and wit. "In particular," the analyst said in regards to even a small rate cut such as this one, "it causes the dollar to decline in value and contributes to rising oil prices, which fuel inflation."
I'm not an economist, but I can speak with similar lack of precision and certitude. I believe that inflation, where every dollar we make is worth less and less, is worse than recession, even though recession is very bad indeed. The failed economies of the world, however, are the ones where money is worthless and people start trading in vodka or meat, no one can afford to drive their cars to the stores they can't afford to shop in.
Now, nobody is pumping for a recession. That would be terrible, too, of course, in different ways. But one can certainly understand why the Fed would move with caution to try to balance these two dangers with some feeling of care and trepidation.
Wall Street, for its part, wants what it wants when it wants it, and what it wanted was a nice greasing, to help more money flow down the pipeline. More in the pipeline means more cash for each individual at every limb of the gigantic money tree. Certainly, that would be good for Wall Street. But would it be good for us? And by us, I mean We?
I know the impact that being a publicly traded stock has on a company. A few years ago, my former corporation was in the grip of a bunch of greedy, liver-spotted executives who were worried about the value of their stock options. It came to their attention that the enterprise would be rewarded by Wall Street, short term, for selling one of its most valuable assets, one that produced excellent cash flow but little in the way of bottom line earnings. They sold the asset and each made a bundle, as did all the chattering the monkeys in the money tree. Within a couple of years, it became clear, however, that the firm was actually dead in the water without that high-margin, cash flow engine. One quarter, the 100 year old firm, a famous name in American business, almost didn't make payroll. And it's gone now.
But Wall Street was happy with the transaction, and many more the Company made just like it. And for a time, certain individuals did get a righteous, leafy payout.
Wall Street has certain demands: growth, buzz, action. Organizations, even great ones, sometimes thrive on stability and stasis, churning out products and profits reliably if not spectacularly. Wall Street drives the decision-making process at every company listed on its exchanges. It rewards those every day who heed its agendas, and punishes the offenders.
Would a huge rate cut be good for you and me? Maybe. Maybe not. One thing's for sure. Down there in the shadow of George Washington, they've already made up their minds.