Wall Street in Washington


Power and politics are something that has been in my mind for a long time. Today’s world is different than past worlds. People hold a device that has almost all of the world’s knowledge in their pocket, and they is mostly use it for playing games and texting other people. These advancements in technology have helped the human race more than I can imagine, but who should have the ability to control all of these new gadgets? I couldn’t help but think of this when I was watching Inside Job when they were talking to the derivatives. From my understanding these derivatives allowed investment banks to essentially gamble on anything. Gambling is all fun and games until you are using someone else’s money, this is where the line needs to be drawn. The banks had been doing this for a short time when the government wanted to start regulating the use of derivatives. Brooksly Born was appointed to head the commodity futures trading commission, this oversaw the derivatives market.  They were praised as being safe and sound but they were determined to be potentially dangerous. In May of 1998 it was proposed to regulate these derivatives, Brooksly Born received a call very shortly after from Larry Summers (Secretary of the Treasury) saying he had 13 bankers in his office and “he, in a very bullying manner, directed her to stop.” It is things like this that convinces me that politicians actually have no power. The reason I say this is because the politicians are meant to represent the people of the United States, not the people who give them money. This is not the politicians fault however, it is simply the system putting them in a tough situation. I think that politicians are lying skeez bags as much as the next guy but I can’t help but feel sorry for them in situations like these.

Essentially the whole documentary made me question how much power that Wall Street has in Washington. It just makes me wonder who actually is calling the shots. I am sure that the 4 Secretaries of the Treasury that came directly from Wall Street were very well qualified but it still makes me scratch my head a little bit. It seems to me that these people that were put into positions of power are the reason that we had so much deregulation and problems. Now I am not a socialist, I do not think that the government should have extreme amounts of control over the economic system. But I do think that the government systems that can put regulations on certain aspects of society should have enough power to do so. You look at government groups such as the SEC and the CFTC that have a job and a responsibility to the American people to prevent Wall Street from doing dangerous things with people’s money. As soon as one of them tries to act on something that’s seen as wrong they are threatened with budget cuts. The only people that can do this is Congress, so this means that all of these congressmen are standing with the big banks in order to keep their donations rolling in. The system as a whole has some flaws that are extremely large and extremely difficult to fix.

If you take a look at the past and how we have fixed problems then, it is reliant on the people of the United States stepping up and telling the government that they want a change. This is probably the tallest task of all the problems in this scenario, people simply are not informed enough about this problem to step up and make a change. In the past the problems were very easy to see, African American people were very clearly discriminated against before the Civil Rights movement, Women could not vote prior to the women’s suffrage movement. It is the collective effort of a large group of people that has the power to change the political system. However these examples are rare. Manuel Castells speaks to this in his book Networks of Outrage and Hope: Social Movements in the Internet Age “Movements do not object to the principle of representative democracy, but denounce the practice of such democracy as it is today, and do not recognize its legitimacy.” Movements are very difficult to get started and it is very difficult to get everyone on the same page. Getting enough people to get behind a cause to get any sort of political action is hard enough, with the added challenge of informing people about such a difficult subject makes it even harder. That is why I do not think that anything is going to change when it comes to Wall Street having too much power in Washington.

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10 thoughts on “Wall Street in Washington

  1. Nice post Ben, I think you touch on many of the important points mentioned in the documentary. Derivatives are absolutely a controversial topic as they have the potential to lead to serious abuses, as evidenced by the CDS’s and CDO’s which were instrumental in causing the financial crisis. Yet, derivatives do serve some useful purposes, such as hedging. The classic example here is a wheat farmer who is hedging against the future price of wheat rising. In instances such as these, it is hard to deny that derivatives can be a force for good yet, as you allude to in your post, this is really not how derivative are used. They are often used for excessive speculation (gambling, in essence), arbitrage, etc. and can have the detrimental impact of driving up the prices of commodities, which threatens both consumers and corporations who depend heavily on commodities for their operations.

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    1. Thanks Brady, I can always count on you too add something insightful to my blog posts. I think you make some good points about the derivatives. The documentary doesn’t really touch upon the positives of derivatives as much as the negatives. I believe that they can be useful in many different instances. The way they used them in the late 90’s to early 2000’s was wrong though. It becomes a much bigger deal when playing with someone else’s money.

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  2. Just from looking at Enron and the financial crisis, as well as articles I’ve read in my Corporate Finance and Investment courses, it amazes what people in Wall Street will do to make a profit. It’s basically gambling when you have little regard for the consequences. Like you mentioned, fixing some of our problems may be reliant on citizens initiating this change with the government – I just think right now, our country has some of its priorities mixed up in terms of what it is trying to fix.

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  3. As I have started to learn more about the financial crisis of 2008 over the course of the past year it has just amazed me how careless some people on Wall Street really are. It makes me question exactly where this country is heading or if we are just going to be on an endless roller coaster of recessions. One of my Econ major friends said that he learned in class about how the system is essentially set up to go into a recession every 8-12 years or so. So keep your eyes peeled!

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    1. I don’t think the Wall Street employees are careless, I think they are acting on the foolishness of our government and public. I actually view the wall street employees as being smart enough to speculate that the government would not catch on to what they are doing and allow them to make large amounts of money until the collapse. I am not saying that what they did was morally right, because it was not, but what I am saying is that people are going to act upon their self interests. The only way I see them stopping is if regulation and large enough penalties dissuade them from being exposed to too much risk.

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      1. Thanks Peter, what your saying is true. These Wall Street employees have no reason to stop doing what they are doing except for moral reasons. This makes it even more difficult to judge what exactly they were doing wrong from a legal standpoint, the government didn”t catch on and no laws were able to be put in. But even if somebody in Washington had caught on, I do not think that anything could have been done about it because of all the influences from Wall Street in Washington.

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  4. I think Peter brings up a good point regarding where to place the blame. Is it Wall Streets fault, or is it lack of general regulation? We’d like to assume that everyone behaves in an ethical manner, however it is the government’s responsibility to provide proper regulations, specifically regarding conflicts of interest within the financial world. The conflict of interest between credit-rating agencies and the businesses being rated was the driving factor behind the financial crisis and was something that should have been addressed a long time ago.

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    1. Okay that makes sense to me, Washington does need to step up their game on the regulation aspect. But do you think that it is even possible? You look at government bodies such as the SEC who attempt to put regulations on Wall Street but get shut down before they can even get started. The documentary mentions many of the people involved with Washington who had a say in whether or not to put regulations on anything. It seems to me that no matter how hard they try, they can’t seem to get anything done because of all the people pushing back on them.

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