Random Thoughts

Wall Street and Congress

Where foxes guard the chicken coop

The current debacle on Wall Street is finally making the na've American public realize that they have been misled for much of the life of the republic. Alexander Hamilton, who was the prime mover for the Federal structure of the government, also bears the dubious distinction for playing reverse Robin Hood by enriching speculators, who bought the discounted continental paper debt from the poor soldiers and retailers. The prolific rewards meted out to the rich, who pledged little more than their sacred honor, while prudently running away or placing themselves beyond the reach of harm, were to the detriment of impoverished veterans, who risked their lives. The Whiskey rebellion was due to the heartless policies of the Treasury Secretary. His munificent disbursement of national gold to the speculators to feed his ambitions brought him a lethal harvest of lead from a more ruthless, scheming and unprincipled rascal, who incidentally was a vice-president of the republic and later finally came into his own, as a traitor.

It is patently ridiculous to allow stock analysts to have an incestuous relationship with the investment bank arm and reward them in proportion to the profitability of the latter. The incentive to dupe the public by promoting overvalued stocks, which the savvy insiders are unloading, is a temptation beyond the ability of human resistance. To allow investment banking firms to be retail brokers as well as market makers is like melding the executive, legislative and judicious powers and giving them to an absolute monarch and thus creating a tyrant monster to terrorize the common citizen. This however is the tradition, as Roosevelt appointed Joseph Kennedy Sr. as SEC chairman and most regulatory Czars have been insiders.

The frequently quoted Merrill Lynch study, proving the superior performance of equities over time, conveniently chooses a favorable era. Those persons who bought prior to the 1929 crash did not even break even after more than a decade. The current crash of the NASDAQ is history repeating itself, but both times as a tragedy.

The important point, that Madison tried to get across in Federalist No. 10, was that factions could be the downfall of the republic and their tyranny and manipulative tendencies needed countervailing forces. The report cards on the Senate and the House, clearly show them to be captive pawns of vested interests. The reluctance of the executive branch to come clean on the Enron fiasco is far from reassuring and incompatible with good governance. The passage of a skewed tax bill rewarding those earning more than $300000 and the raiding of the lock box to spend the social security surpluses on unneeded, unfeasible expensive boondoggle weaponry, confirms unintentionally the only true obscure excerpt of Federalist No. 10. "Men of factious tempers, of local prejudices, or of sinister designs, may, by intrigue, by corruption, or by other means, first obtain the suffrages, and then betray the interests of the people." Madison's prescriptions and hopes of preventing this sorry state have not stood the test of time or reason. Corporations and affluent or powerful factions have suborned the machinery of the republic, like a virus, to promote their private interests and deprived the public of their just desserts. Campaign finance reform, term limits, accountability and adequate controls on elected officials to breathe new life into the ailing republic, so it can heal itself.

Some of my readers in the past have accused me of constant carping. I wish to clarify that USA still is one of the better governed countries compared to others in the world, but this does not mean that there is no scope for tremendous improvements. To paraphrase Robert Browning, a man's reach should exceed his grasp, for what was heaven made for?  

19-May-2002

More by :  Gaurang Bhatt, MD

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