Wall Street’s high risk taking could be a key issue at the 2012 US election. Many Americans now understand that the big fluctuations on Wall Street are affecting their employment and the Occupy Wall Street movement is growing. In Ireland they know they were disemboweled by their high-risk-taking banks and the rest of Europe is starting to get the same message.
Last night we saw big US sharemarket rises pushing the Dow to a 1000-point turnaround in about a week, supposedly on the basis that a couple of European leaders reckon they can fix Europe in three weeks.
If they fail then the market could just as easily reverse those gains. With all that comes massive movements in currencies and commodities. This is traders playing casino games, but the sufferers are real people.
In former years, the massive US stimulus packages would have gone into housing and business loans, but in 2011 banks make more money and generate more executive bonuses funding speculation in their investment banking arms. The American investment banks had to be rescued from the subprime mess, which had provided big trading profits. Now the European banks have done the same thing by funding Greeks and others who can’t pay. In both cases, the gambling risks were undertaken in such huge amounts that the banks lost their capital and more.
While this is happening, American companies can’t plan capital raising and are reluctant to hire. Housing finance remains very tight. This adds up to a bleak jobs outlook.
My US-based research assistant Alex Liddington-Cox tells me that the RBC Consumer Outlook Index for October reveals that 34% of US workers are concerned about losing their jobs. That’s up 6% from last month.
In the past six months an average of only 72,000 jobs have been added to the US economy each month, down from 161,000 a month in the previous six months. The US economy needs to add about 125,000-150,000 jobs per month just to keep the unemployment rate steady.
In Australia, Westpac’s index of how consumers feel about their job security has a long-run average of 127.6. It currently sits at 146.6. People are nervous and the casino market contributes to that nervousness.
Australia has an extra problem: the inability to value shares in this casino environment is seeing us lose the stocks we require to diversify retirees’ investments away from banks and miners. International groups who understand value are having a ball picking up the bargains. Foster’s is the latest example.
Former BHP chairman and NAB chief executive Don Argus could hardly be described as a left winger but he believes that trading should be separated from conventional banking because it’s almost impossible for a commercial bank board to understand investment banking risks.
Neither Don nor I will be flying to New York to join the protests but we understand the dangers that bad Wall Street regulation poses to the world economy, which is expressed through employment. Meanwhile, Alex tells me mainstream US media is sympathetic to the protests but Rupert Murdoch’s Fox network ridicules them. It was the reverse when it came to the Tea Party protests. Bring on the election.
*This article first appeared on Business Spectator