What If Main Street Bailed On Wall Street?

I don’t even pretend to understand “the markets” and what makes them tick, the whole thing is so damn complicated these days I’m not sure the people on Wall Street even understand it. But I wondered something.

Seems I’ve now read that every single Republican candidate for president wants to do away with the capital gains tax completely, as well as the estate tax. Now, let’s just pretend for a minute that this happened. What would the effect be on the average American investor?

How many people do you suppose would bail out of the stock market if there were no tax consequences for doing so? What if they put their money someplace less volatile, safer, less like an unpredictable casino? With real estate still in the doldrums, would people of the “average American investor” persuasion decide there are bargains to be snapped up in that sector? Would they buy gold? Would they buy CDs like we did back in the ’70s when interest rates were so high?

And if the “average American investor” did decide Wall Street was no longer a safe bet, would anyone care? We already know that the big Wall Street guys think Main Street investors are idiots, rubes, marks, sheep led to slaughter. Or to be precise:

Wall Street’s soulless, immoral, greedy bankers really believe that the vast majority of America’s 95 million investors are not only “predictably irrational” but “stupid,” as J.P. Morgan Chase’s chief investment officer put it in Forbes a while back.

Worse, Main Street investors are losers for continuing to trust Wall Street after they lost 20% of our retirement money the last decade. Now, worst of all, Wall Street’s traders have profiled Main Street investors in their algorithms: Yes, investors are “predictably stupid losers,” what Vegas croupiers call a mark, a dumb gambler that can be easily conned out of his money.

Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform, to preserve their multibillion dollar bonus pool. One reader commented: “I worked at the Bear Sterns … every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly, among themselves.” Then he added a sucker punch: “What is extraordinary to me is how willingly the sheep submit to this.”

Yes, folks, Wall Street is certain that America’s 95 million investors are clueless sheep headed for the slaughterhouse.

That column I quoted is over a year old, but it still feels true to me. I don’t get the feeling that Wall Street investment bankers give a shit about Main Street, the average American, 95 million of us who have our retirement entrusted in their care. If even a third of those 95 million decided the markets were just too volatile and unpredictable, and there were no tax consequences to cashing in and burying your retirement in the backyard, what do you suppose would happen? I’m not being rhetorical here, I really want to know.

On the one hand, I think you’d have a bunch of little investment guys suddenly out of work. Maybe that annoying E*Trade talking baby would finally be shoved off to Kinder-Care where he belongs. I consider this a good thing, mind you. I hate that fucking E*Trade baby. Investing is not child’s play, people!

But I think you’d also have a lot of those Edward P. Jones and Charles Schwab offices shutting down, too. The brokerages and investment houses which cater to the Main Street investor might be in trouble. I imagine there would be quite a ripple effect throughout the investment world. But what do I know.

What would Wall Street do if 30 million people pulled their money out of the market? Would there be increasing demands to privatize Social Security?

It’s an interesting thought. I really don’t know that much about this stuff, and I wonder what other folks think.

Adding …. I don’t for a minute think the capital gains and estate taxes will be eliminated and even if they were it would be phased in over a few years, at which point Main Street investors might have forgotten the middle finger Wall Street has been giving them for years. So I realize my little thought experiment is flawed. But it’s something to think about.


Filed under Wall Street

13 responses to “What If Main Street Bailed On Wall Street?

  1. gandalf

    ….and your cogent essay was promptly followed by a Google ad for Day Trading 4 Beginners. I’m beginning to have faith in irony again.

  2. *REALLY*???

    Where? I don’t have ads on my blog!


  3. Jim

    I wonder what percentage of pension funds and such are invested in the stock market? I think alot of people are invested in the stock market indirecly whether they know it or not. Most 401ks offer stock portfolios to invest in along with your “safer” options of Treasury bonds, etc. What most people need to understand is that you need a diversified portfolio for your retirement investments. Also, as you approach retirement age, the ratio of stocks to safer investments needs to change. I am sure alot of people just put their monthly money into their work retirement plan and forget about it, but it is their responsibility to plan for retirement. I think the saying is “if you fail to plan, you plan to fail.”

    What would happen if alot of people pulled their money out of the stock market? Who knows, but I would bet the lower and middle class people would end up falling even further behind and then blame the rich when the rich cash in on their stock investments.

  4. Well I think pretty much all of the pension funds are invested in the stock market, that’s why everyone lost their retirement in the last downturn. And no, you can’t control that … a lot of that is set by state law if it’s a public pension, a lot is company policy if it’s a private pension.

    As the market’s volatility increases, pension funds can be invested in other things like municipal bonds. And if you’re in a 401(k) through your employer you usually don’t have too much control over where your money goes. We were given three different options for where we wanted our share to go, but one of those options would have been bonds.

    I don’t know many people who forget about their work retirement accounts. Employers have to give you a statement every quarter, and you’re allowed to shift how it’s invested at least once a year. I think at our office it was twice a year. And you better believe everyone in my office watched it like a hawk.

    I really don’t buy the whole “the average person is a lazy irresponsible idiot who isn’t paying attention” line you’re peddling, Jim. I mean, what is it, anyway? Why the constant blame game with conservatives? I don’t get it, this constant disparagement toward your fellow citizens. It’s always “poor people made bad decisions and it’s their fault their lives are a mess” and “middle class people are irresponsible and lazy and don’t pay attention to their retirement accounts which is why they’re sucking off the gummint teet.”

    That is NOT the world I live in. When money is tight, people are fucking paying attention. I’ve never worked at an office where everyone doesn’t pour over these quarterly statements and asks tons of questions. If anything it’s the super rich who aren’t paying attention because they have so much to begin with.

    Maybe it’s just how people do it in Memphis. I sometimes think you live in an alternate reality of right wing talking points and Cato Institute white papers. None of it is the reality I see with my own eyes.

  5. Min

    I hate what the market has done to my 401(k), and, unfortunately, I’m a captive of the limited options provided under my plan. Plus, I have neither the time nor the education to be able to profitably invest my own money directly. I’m so damn frustrated with the whole thing that I’m taking the extra amount that I could add to my 401(k) contribution and just socking it away in the credit union.

  6. Min I share your frustration. And I’m not sure if I had all the education and investment savvy in the world I’d be doing any better. I really do think the game is rigged.

    You know, if I’d done the exact opposite of everything my FA told me to do I’d have fared a lot better. But even beyond that, there’s so much stuff going on over which we have no control … these computer algorithms affecting the markets and so forth. I’m just like, screw it. Give me something that the average person can research and understand and invest in. Because gone are the days when you could choose a stock based on the logical stuff. It’s all been gamed.

  7. nanute

    It is even worse now that the Supreme Court has ruled that Janus cannot be held liable for fraudulent prospectuses given to mutual fund investors. See here:http://www.angrybearblog.com/2011/06/i-hate-it-when-my-cynicism-is.html

  8. See, that’s exactly what I’m talking about. And then when you lose your retirement money they’re all, “well YOU made bad decisions, sucka! Not OUR fault!”

    • nanute

      And one more thing you should be aware of with regard to your 401K plan: expense fees! The difference between a .25 and a 1.00 expense fee can cost you almost 20% of your return over a 25 year period. This handy little tool will let you see just how much fees impact the rate of return over time. http://www.buyupside.com/mutualfunds/mutualfundfees.htm
      I’m not arguing that fees should be the only concern with regard to your investment choices, but it should be a consideration. If your 401K has an index fund, check out the expense ratio. It should be .25 or less. Vanguard’s is about .13. Anything above the .25 line is a rip off. Demand that your plan administrator give you more choices with lower expense ratios. It is a fiduciary responsibility.

  9. Sadly, I do have the education and expertise to do better at investing than most, but the company I work for limits our options so severely that it’s useless. Unless you’re a major investor (like a pension fund manager) you get no access to investment options that reap the bigger gains. You just have to be lucky.

    Success in investing in the stock market is not based on the soundness of the company or it’s prospects, it;s based on the perceptions of how the company ought to do, based on how analysts feel, and their expectations of performance rather than the actual performance itself.

  10. jim

    “I’m not sure the people on Wall Street even understand it.”

    Derivatives, CDOs, credit default swaps, etc., are explicitly designed to be as complex as possible – those who operate them are indeed ignorant of their real functions & prefer to stay that way.

    A bonus of the current trend toward inhumanly fast computer trading is that effective real-time monitoring or forensic analysis of illegal activities is next to impossible.

    Smart criminals always cover their tracks.