Friday, October 14, 2011

A Trader's Perspective on the OWS movement

Brian Rogers of Fator Securities

The average American citizen is quickly falling behind their global peers in terms of education levels and many find the topics of economics and finance far too dense to comprehend. So it’s no small accomplishment that the enormous amount of taxpayer bailouts and Fed monetary injections have finally awoken the American middle and lower classes up to the reality of a terribly unbalanced financial system. This awakening is currently represented by the Occupy Wall Street protests. However, lest you think these protests will simply go away once winter sets in, think again. Even if the official Occupy Wall Street protest dissipates in the next few months, the word has gotten out and the message is finding an interested audience that fails to conform to traditional political boundaries.

How Occupy Wall Street Will Change Things

Suddenly, all over this country students are questioning their economics professors about the standard dogma they are being taught which is visibly failing all around them. How can the PhD.’s preparing tomorrow’s generation of finance and economic leaders continue to teach Keynesian doctrine with a straight face? How can they possibly defend the bailouts and the Fed’s enormous hand in manipulating asset prices as anything even remotely resembling capitalism?

As these students graduate and begin their own careers over the next few years (assuming they find jobs in the first place) they will enter the workforce much more aware of the slight of hand that has taken place whereby organic growth was replaced with extremely dangerous debt growth. Then they’ll stop and think about their own student loans and how the non-dischargeable nature of those loans chain them to the very system they are questioning. These students will be heavily in debt, face few good job prospects and will thus have plenty of time on their hands. Hello political volatility.

And what about the lower and middle classes? It really doesn’t matter what your political affiliation is, if you make less than some magic number defined as “rich”, say the $250k that is currently bandied about, neither political party is really working for you. Both parties have contributed wildly to the overspending that currently burdens our fiscal and monetary accounts. Both parties are deeply in bed with the banking industry. Arguing over who supports Wall Street more is simply a matter of degree. Both parties support the monetary intervention of the Fed and the inflation that has slowly rendered our country uncompetitive since 1971, a role the Fed was never originally envisioned to play.

If you’re unemployed due to your job being shipped overseas, have been kicked out of your house by a robo-signing bank, worry about the tax burden your kids will face down the road, concerned that your public or private pension will be woefully inadequate to maintain your current living standards or have mountains of non-dischargeable students loans owed to Sallie Mae, you should be paying close attention to and likely supportive of the OWS movement.

Repubs vs. Dems: A False Dichotomy

Vote Republican? The Repubs increased debt from around $5.6tr in 2000 to over $10tr by 2008. They also passed the massive social entitlement program Medicare Part D without any mechanism for actually paying the tab. The party of small government and fiscal conservatism you say? Yea, right.

Vote Democrat? The Dems supported the bailout of the banks, the funding of ruinous foreign wars started by the Repubs, the re-nomination of Ben Bernanke as the head of the Fed and appointed to the highest offices of White House influence - the very architects that helped create the global financial disaster we currently face. Summers, Geithner, Rubin and many others have had President Obama’s ear since day 1. You think those guys are advocating a solution which would see the banks actually take write-downs and losses as any other business would have to? Not likely.

Both major parties spend enormous time and money maintaining their own power bases of large, wealthy campaign contributors to try and outspend their competition in the next election. When they win, they serve their campaign contribution masters well with the hopes that this process will be rinse, wash and repeat the next time around. Both parties support no term limits. Both parties support liberal campaign finance laws. Both parties kowtow to Wall Street.

So what’s a disenfranchised, frustrated, out-of-work lower or middle class citizen to do?

Here Comes the Third (And Perhaps Even Fourth and Fifth) Party Movements

The Tea Party was the first threat to the status quo. I happened to be watching Rick Santelli’s rant on CNBC back on February 19, 2009. It was brilliant and really captured the mood of those of us who had always imagined our economy to be truly capitalistic. Instead, as soon as the uber-connected banks faced the threat of actually losing money, they called their good buddies in DC (in many cases former co-workers) and demanded a payout or else the world will end. Naturally, Congress feared the campaign contributions would end so they quickly wrote a $700bn check.

Of course the first TARP vote failed, but they needed that cover to save a bit of face. The powers that be were never too worried that they couldn’t scare the financially ignorant in Congress into coughing up some dough. Vote doesn’t pass, market tanks, many pants are wet in DC and ipso facto, the money flows. Many of us were outraged and Mr. Santelli crystallized the moment.

This led to the Tea Party. But for the status quo, the Tea Party was easy to diffuse. Sprinkle in a few right-wing ideologues spouting fire and brimstone and the mainstream voter will be justifiably turned off. The modern Tea Party, just like the one back in Boston in 1773, weren’t inspired by social issues, they were inspired by economic issues. And yet, the status quo and mainstream media has been extremely successful in painting the modern Tea Party movement as nothing more than rebellious right wing Republicans looking for something more conservative than the mother ship Republican party.

Occupy Wall Street, in my opinion, represents a refinement of the original Tea Party rant and the next political movement to be inspired since 2008. This movement represents the point where it’s no longer just financial insiders like Mr. Santelli that understand the graft and corruption that is our current system. No, this movement is solidly being peopled by folks from a broad array of life experiences, political stripes and philosophical leanings. It will be much harder for the status quo to dilute this message. Harder, but not impossible.

Phase II Coming To A City Near You

I keep thinking about Gandhi’s great quote, “First they ignore you, then they laugh at you, then they fight you, then you win.” It seems to me that we are at the end of the ‘then they laugh at you’ phase. Watching CNBC lately, the snarky comments from the talking heads have eased off quite a bit and now they are reporting live from Zuccotti Park with a more serious tone. At the same time, the city of NY seems to be reaching the end of its tolerance towards the movement.

Next step is the ‘then they fight you’ phase. This is when things will get interesting. Arrests will be made, traumatic video of cop-on-protestor violence uploaded to Youtube and people you’ve never heard of will suddenly emerge as leaders in this growing movement. How will this affect the upcoming election? It’s impossible to predict but it’s going to be interesting to watch.

The bottom line is this thing is going mainstream and although the message isn’t completely clear or concise, Americans all over the country are beginning to sense the turning point this movement represents.

2012 Presidential Election

Obama recently tried to embrace the OWS movement. I find this extremely hypocritical given his role in sustaining the very institutions the group is protesting against and his frequent trips to NY to raise some more Wall Street money for his re-election war chest.

How about the Republican candidates? Most are dismissing the protestors even though the basic premise of the movement is a more fair and balanced (pun intended) system for all Americans. After vast injections of campaign finance money, the Repubs have come to believe that the banking industry is a much better constituent than mainstream Americans. At least the banks have money to finance their campaigns. They seem happy to ignore the circular argument that the government creates money to loan to the banks at 0% so that the banks can then loan that money back to the US government with interest and virtually guaranteed capital gains and then give some of those interest payments/capital gains back to the politicians in the form of lobbying/campaign finance funds to ensure more no-cost loans and bailouts. What a beautiful business model!

Ron Paul, of course, gets the joke very well. But the media is working overtime to ignore Ron Paul at every turn lest the American public actually start to understand the logic of his positions. So as much as I’d love to see the guy win, I still think Ron Paul is a man ahead of his times. Rather than lead this movement from the front, I think it’s more likely that his philosophies will serve as the inspirational base for future leaders.

The Genie is Out of the Bottle

What eventually became the Arab Spring is spreading and quickly becoming a Western Winter. Protests in Europe and America are growing in size and intensity. Awareness of the unfair and crony-capitalistic nature of our current political/financial system is spreading. Americans of all economic, geographic, philosophic and political stripes are questioning the very foundations upon which our “prosperity” has been based for decades. Slowly they are realizing that they were always playing a rigged game that they were never designed to win. As you’d imagine, this is not sitting so well with them and some are starting to stand up and make their voice heard. Don’t think for one second that this is going to stop. Americans by the millions are losing their homes, their jobs, their savings and their futures.

In their brilliant book about the history of US generations, The Fourth Turning, William Strauss and Neil Howe called the current phase of history we are passing through as a ‘Fourth Turning’. Their characterization of this phase is as follows,

“A CRISIS arises in response to sudden threats that previously would have been ignored or deferred, but which are now perceived as dire. Great worldly perils boil off the clutter and complexity of life, leaving behind one simple imperative: The society must prevail. This requires a solid public consensus, aggressive institutions, and personal sacrifice.” -The Fourth Turning, Strauss and Howe, 1999

Whether the protestors realize it or not, their role in history is an important and necessary one. They are shining a disinfecting light on much of what is wrong with our current economic/political model. Major changes are coming, many of which would have seemed unimaginable only a few years ago. Class warfare, generational warfare and perhaps even military warfare are coming next. As extreme as these views might seem, just study history a bit and you will see that every great empire falls this way. We will be no different. And when it’s all said and done, a straight line will be drawn from Rick Santelli’s rant, to Zuccotti Park to whatever comes next. Eventually a more vibrant, dynamic America will emerge from this chaos and pain. But that’s the ‘then you win’ phase. And we ain’t there yet.




  1. Rick Santelli's rant was not directed against the banks. No, there is no line between that malevolent showman and pissed off young people. Sorry.

  2. Gotta love a post chock full of wishful thinking!

  3. Agreed with 1:34 PM. Santelli was largely blaming individuals for being deadbeats not directing any anger against the banks. This, on the other hand: is actually directed against the banks and objects to the sham of a political process we have.

  4. I especially like how well the poster writes with such certitude about the future. Truly moronic.

  5. Where to begin with this idiot? The only division that matters is the one between rich and poor, and Rich Santelli and the Teabaggers and Ron Paul are pushing for policies that favor the rich, whether they realize it or not. The only policy that favors the middle-class poor is the obvious one: wealth redistribution.

    It helps cut through the nonsense propagated by fools by repeating over and over that debt = wealth. To reduce the debt overhang, you must also reduce the wealth overhang. Either the debts are defaulted upon, or the debts are inflated away, or the creditors are taxed and the money funneled to the poor so the poor can pay back their debts. Anyway you look at it, the creditors (=the wealthy), must lose some of their wealth (=debt they own). Transferring debt from households to the government doesn't solve the problem. The wealthy merely shift from owning too much household debt, to owning too much government debt. In both cases, excess concentration of wealth implies a constant transfer of purchasing power, in the form of interest on the debt, from poor to rich, so that society is constantly short of demand and we end up with unemployment and recession. Classic Marxist/Keynesian analysis.

    Given that inflating debt away is disruptive, defaulting on debt is disruptive, that leaves taxation of the debt owners (the wealth) as the best approach.

    The idea of reducing debt owed by the poor without simultaneously reducing credits (=wealth) owned by the rich is absurd, and yet that is exactly what we hear constantly: "Reduce debt, reduce debt!", with the implication that debt reduction can somehow occur without reducing wealth of the rich at the same time. Anyone who advocates debt reduction without simultaneously advocating higher taxes on the rich is a charlatan.

    In theory, instead of a zero-sum game, as described above, we could have a positive sum game. That is, the wealthy could pay the poor to build something of value, and the poor would then pay off their debts with the money they were paid, so that at the end of the game the rich no longer owned debt, but rather equity. In other words, investment spending. The problem is that no one can think of anything worth investing in right now, precisely because there is insufficient purchasing power in the hands of those who are willing to consume, and so the whole system has come to a halt. Thus if there is to be a substitution of debt for equity, it must be by government spending, on the sorts of investments that private individuals are incapable of making. For example: basic R&D: infrastructure; social restructuring, such as buying out entrenched interests so as to allow for greater efficiency in the future. In any case, given the general stupidity level concerning economics in our country, I think the idea of government investment spending is impractical right now. Maybe someday we'll return to the optimism of the 1960's, when we spent on the space program and similar bold great R&D schemes. For now, simply taxing the rich and creating makework jobs for the poor is probably the best we can hope for.

  6. So. According to the same people who you're quoting now, we should have "runaway inflation" by now. Actually, we're well overdue.

    What happened to that? Forget trying to discredit the Keynesians - whatever else you want to blame them for you certainly can't blame them for trillions of risky junk bonds that were mislabeled and sold as triple A debt. Try discrediting the people who were very, very wrong six months ago. Or a year ago.

    If we had runaway inflation, then maybe the economists you're citing would have some credibility. But we don't, so they don't Sorry.

  7. It appears that there may have been an intimate relationship between the former US Secretary of State Condoleeza Rice and Gaddafi. It's all become a Freak Show....

    I don't know whether to laugh, to cry, or to puke?


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