“Liquidity” was the invention the wizards of Wall Street came up with to create a lot of fake wealth and transactional opportunities for them to siphon off “investors’s” money for themselves.
The great run-up in GDP thanks to all this liquid capital came to a crashing halt in the fall of 2009 when the banks collapsed (yes, that’s what happened) and the taxpayers had to step in to bail them and a few other big industries out. In 2011, China is expected to overtake the U.S. as the largest producer of goods. [1] All the while, Congress is still arguing over derivatives markets and disclosure rules.
Let me make things clear: Before this move to liquidity, programmed trading, hedge funds and other fancy financial instruments- we used to deal with things like profitability, price/earnings ratios, leverage and market share. Now, we don’t. A company’s actual value has no connection to its market position, products or projections. Wild swings in stock prices have swung our economy around by the neck- almost to the point of death. It’s time to stop.
Back in the old days, when people in my business still used acetate, keylines, press-type and the like to create ads, there was a book on typography that I loved. One example was how you would set the tagline in a specific typeface to match the message. “Our advice is rock solid” was the line- and it called for a strong, sans serif typeface- not some swishy swashy face.
We heard about “Get a piece of the rock” when we thought about insurance. There was a recurring theme of strength in financial products ads- because the idea of “investment” was tied to something concrete. They didn’t say “Our advice is like water” or “Get a piece of the spill” because we had to believe in these financial instruments that weren’t backed by the old “gold standard” or anything else as concrete as just saying “trust me.”
The move to liquidity made it easy to ignore the skimming of the cream- which is what made Wall Street go nuts. Every transaction paid a commission, and the people who did the deals, just became junkies for more deals- until the deals were being done for no other reason than to get the quick fix of a little cut on a lot of money being moved. It got so crazy that 70% of stocks are now held for 12 seconds or less. In the meantime- the companies that are supposed to be benefiting from these crazy transactions stopped worrying about making widgets- but making sure their stock stayed strong. That might account for the chicanery that showed AIG as a grade A investment, weeks before its mighty fall.
The reality is: it’s a lot harder to steal a little bit from concrete- but easy to siphon off some liquid and pretend it’s still all there. After they couldn’t play with the liquid anymore- the concrete started to crumble- plants closed, jobs lost, economy in shambles.
That’s why the only way to fix this mess is to put some concrete rules in place that put balance sheets, profit and loss statements and investors back in control and take this wild ride created by Wall Street off line. No more trades bigger than .01% of any company for less than a year, no more programmed trading based on fluctuations, no more big CEO pay outs before the shareholders. There must be a ratio set for pay- so that it’s based purely on performance- not on what “the market will bear.”
Put real numbers back in play- and we’ll see real jobs. You don’t employ Americans, you don’t make over a million dollars- simple. It’s time to tighten up what we allow to be collected as rewards- for instance, can anyone tell me why running DP&L, with no competition, a captive market, and a commodity product rates a salary of over a mill, while running Sony- a global company in a highly competitive marketplace doesn’t?
If you wonder why your pension fund was robbed blind- the answer is that it’s easier to steal liquid than concrete. That’s why people will siphon gasoline, but have a hard time stealing your home’s foundation (however, the bankers found a way to do it- just create credit default swaps and punt your loan). Put the fundamentals back into the market and this mess will begin to straighten itself out quickly.