3c hapter - Index of

26 Locavesting
of the late 1980s) have taken place not deep in some boiler room,
but right under our noses at the nation’s top fi nancial institutions.
As we know all too well by now, mortgage brokers pushing “no-doc”
loans on unqualifi ed home buyers, investment bankers peddling
highly leveraged inscrutable securities packed with toxic garbage,
and rating agencies that stamped it all Triple- A, collaborated to pull
off perhaps the biggest Blue Sky scam ever perpetrated.
The fact is, Wall Street today is a very different place than
the one contemplated by the crafters of the 1930s regulations.
Indeed, it’s hardly a place at all. It’s more a swirling vortex of
profi t- seeking electrons. With the dismantling of key regulations
starting in the 1970s, the shifting of risk from investment fi rms to
shareholders, and an explosion of fi nancial engineering and risk
taking, the fi nancial sector morphed from a productive industry
that enabled the growth of business and promoted an inclusive
prosperity to one that puts its own profi t above all else, including
clients, business, and society at large. As Philipp Meyer, a former
Wall Street trader turned writer, told Time magazine: “With
a trader, the goal of every minute of every day is to make money.
So if running the economy off the cliff makes you money, you will
do it, and you will do it every day of every week.” 13
Today, individual investors are playing in a market that, despite
SEC oversight, is increasingly rigged against them. (As Bernie Madoff
told New York magazine from his jail cell: “I realized from a very early
stage that the market is a whole rigged job. There’s no chance that
investors have in this market.”) 14 The Dodd- Frank Wall Street Reform
and Consumer Protection Act attempts to reign in some of the riskier
practices. Banks will have to divest much of their proprietary trading
and maintain higher capital cushions, for example. And a good portion
of the $600 trillion worth of derivatives will be forced to trade
on regulated exchanges. But having succeeded in watering down the
fi nal bill with a blizzard of lobbying dollars, entrenched Wall Street
interests are now working to make sure that the fi nal rules maintain
their profi ts and market dominance. In a case of the fox guarding the
henhouse, the biggest banks are poised to control the new derivatives
exchanges, keeping them opaque and preserving their fat margins. 15
The risk is still with investors and taxpayers.