What is Wall Street Bringing to the Party?
It’s never been about helping people in the real economy. It’s about distorting the relationship between risk and the yield to maturity for capital investment. One part of the equation is leverage. The other part is capitalization rate on the total asset value. The point at which leverage & cap rate far exceed more modest rates available in the economy of producing goods and services — i.e. creating real wealth — capital abandons the real economy for short term arbitrage profits in the financial economy. This spells the end of capital formation, investing in businesses that generate cashflow with healthy balance sheets. Why bother when faster, more lucrative profits can be gamed from manipulating securities & derivatives? When these elements are added to Paulson’s zombie bank plan of privatizing profits and socializing losses, it is the worst of all three worlds for Main Street. Amy Goodman’s interview with Thomas Geoghegan today described the effects of runaway interest rates on the r
