4 Secretive Ways Wall Street Extorts You

Les Leopold summarizes the toxic relationship between Wall Street and the rest of us concisely. This all makes me sick.

Here are four Wall Street ploys that create a hidden and unfair tax on all Americans.

1. Too-big-to-fail banks jack up every mortgage rate in the country. 

The largest U.S. banks use their oligopoly power to siphon money from the mortgage markets. This means they can charge consumers higher interest rates for loans and credit card debt, and they can keep interest rates on home mortgages higher than they should be.

... when competition among banks declines, the cost of mortgages to consumers goes up. How much? This amounts to a hidden tax of $1,000 per year for anyone taking out a 30-year mortgage. But this hidden tax is so subtle that the average consumer has no idea that she is being fleeced.

2. The biggest banks and their hedge fund partners engage in high-speed trading that rips off everyone who has money in pension and mutual funds.

... by being able to trade in nanoseconds, the high-speed computers can "see" when you're about to buy a stock, get there before you and then resell it back to you for a few pennies more. Between the time you press the "buy" button to the time your trade goes through, the price is bumped up a few pennies by these automated high-speed trading systems. The same goes for your mutual and pension funds.

3. Insider trading is yet another hidden tax.

The U.S Attorney's office in Manhattan has nailed over 70 hedge fund employees on charges of insider trading. Since these cases are extremely difficult to prosecute, it's reasonable to assume that we're seeing a very small tip of the corruption iceberg.

... who's the victim? You are. Again, it's likely to come out of your pension and mutual funds.

4. The biggest tax of all? As Wall Street grows larger, economic growth is harmed, thereby killing jobs, decreasing tax revenues and provoking debt crises.

Andrew Haldane, a key regulator for the Bank of England, reports on an amazing study which shows that as banks grow larger and more concentrated, economic development is harmed. "There is a threshold at which private credit-to-GDP may begin to have a negative impact on GDP growth," writes Haldane. "That threshold is found to lie at a private credit-to-GDP ratio of around 80-100%." 

Unfortunately, our private credit-to-GDP ratio is about 200 percent, meaning the private debt created by banks is twice the size of our economy and doing more harm than good. Let me put this crudely. When the financial sector grows too large, it sucks the economic life out of the economy. Its hidden taxes siphon away investment money from other sectors that could use it much better. It milks consumers and lowers effective demand. And it uses its too-big-to-fail status to take excessive risks to boost profits, knowing full well that any major downside --- the inevitable failures -- will be covered by the taxpayer. [emphasis in red mine]

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Replies to This Discussion

Yes, these are our challenges. Mortgage rates; high speed electronic trading; insider trading; growth of Wall Street. These suck resources out of small business and wage labor and wound the bull. 




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