Careful Wall Street watchers have known for at least two decades that the rigging of Wall Street has resulted in it being the antithesis of an efficient allocator of capital.
By Pam Martens and Russ Martens of Wall Street on Parade
Last year the iconic investor, Warren Buffett, the CEO of Berkshire Hathaway, penned his annual missive to shareholders. It contained this nugget:
“Above all, it’s our market system – an economic traffic cop ably directing capital, brains and labor – that has created America’s abundance. This system has also been the primary factor in allocating rewards.”
If that statement is true, then the $2.3 trillion that the U.S. stock market vaporized over the past two months is nothing for investors to worry about. But if the market is not efficiently directing capital, if it’s a system where everything from stock research, to high frequency trading, to Dark Pools, to over-the-counter derivatives, to revolving-door regulators is rigged to benefit insiders, then buckle your seat belts for the wild ride that’s coming.
The reality is that careful Wall Street watchers have known for at least two decades that the rigging of Wall Street has resulted in it being the antithesis of an efficient allocator of capital.
In 2001, Ron Chernow described for New York Times’ readers how Wall Street’s deeply conflicted model had brought on the dot.com bust. Chernow wrote: “Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody — close to $4 trillion in market value erased in one year — that it amounts to nearly four times the carnage recorded in the October 1987 crash.” Chernow compared the Nasdaq stock market to a “lunatic control tower that directed most incoming planes to a bustling, congested airport known as the New Economy while another, depressed airport, the Old Economy, stagnated with empty runways. The market functioned as a vast, erratic mechanism for misallocating capital across America,” Chernow observed…