Yes, is our answer. Wall Street made money by =91financializing=92 the
economy. Businessmen, for example, ceased thinking about how to
produce better products at better prices; instead, they became much
more interested in mergers, acquisitions, stock options, asset
shuffling, IPOs and buybacks. Some of these activities may have added
value, but not many. But for Wall Street, these were the glory days.
Billions in fees could be charged...and, as long as prices were
rising, few people complained. But when prices began to go down,
lenders looked at the collateral and discovered it wasn=92t worth what
they thought it was. The triple-A credits were marked down...banks
teetered and had to beg for more capital...the government stepped in
to protect the rich and, so they said, avoid a meltdown.
Wall Street also helped turn homeowners into speculators. Instead of
buying houses to live in, people bought them =96 often with no money
down =96 in the belief that they would go up in price. What is a no-
money-down mortgage but an option to buy a house later? And now that
house prices are going down, the mom-and-pop options are expiring
worthless. Housing speculators are putting the keys in the letterbox,
dumping cement down the toilet, and walking away.
=93The bright new financial system,=94 said Paul Volcker a couple of weeks
ago, =93has failed the test of the marketplace.=94
Volcker is right. Wall Street has peaked. The credit cycle has peaked
along with it.
Bill Bonner
The Daily Reckoning
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