By: Brian McKay
At first it was just something that needed to be better understood. Questions were asked. “What is this thing called finance?”. “Why does overreliance on it cause the fall of empires?”
Some study, some reading, some time in the financial services workforce and just like that it becomes clear. This whole thing is a scam designed to screw the little guy! Worse, it’s an actual Ponzi scheme with the last funds coming in being paid out to the first out participants at the top. Even worse still is that only a few people at the top realize what is really up and most are clueless to what they are doing in the first place. They are simply participants realizing massive pay from corrupt incentive systems and have just enough knowledge to be dangerous.
The first participant in this scheme is your 401(k). The old days of a guaranteed and safe pension are long gone. Why give people something that costs straight cash when you can encourage them to prop up markets and your own companies stock? Heck, while we’re at it let's offer some really shitty funds for them to put their money in and the guys that run them can make billions in fee income whether the funds perform or not. That just seems perfectly reasonable.
Better yet, they use those 401(k)s to prop up markets. While the big boys are getting out after a stock market run has happened, you can’t without a massive tax penalty. No, all you can do is find a place to move your money to and take less of a beating. Your retirement fund is actually being used against you while someone at the top gets rich off of it.
While they’re at it, they may as well use you for a little more. Yes, it is no secret that the little guy usually gets in the game too late and gets out far, far too late. The small retail investor is all that is needed for that late rally push so the big guy gets out with a nice chunk of change before the bottom falls out. Who are those big guys with the knowledge? Well there are only a few of them and they are only accessible if you are already really rich. The little guys get stuck with high school graduates working in banks, whose own accounts are over-drawn. Those same little guys buy trading schemes that air on Fox News during Hannity and after HGTV goes blank (yeah those will certainly work, not).
It gets even better. Those big guys? Well they want more. And so large companies push manufacturing operations to much cheaper countries and your income doesn’t grow for the last 30 years. As the manufacturing leaves, the financial sector grows and becomes more profitable. Does it replace those lost jobs with its massive growth? Not a chance. A $100 billion manufacturing company requires far more employees than a $100 billion financial services firm, even in paper clips.
So your income is stagnant, you’re getting screwed in markets and with your 401(k); could it get any worse? Absolutely. It gets way better for them. They raid your tax dollars too.
Not only did you bail them out when their dumb asses took risks they couldn’t pay for or manage, but you loaned them cheap money too. How cheap? Like .25% cheap. They were supposed to lend it out and jump start the economy, but nooooo, they actually took the money you lent them, leveraged it into 10 times what they borrowed and then lent it right back to you at a higher rate. They bought U.S. bonds and pocketed the difference. And the guys that did that? They made so much that they had to add six more bays to their garage for the additional super cars. How messed up is that? Go ask your friend for a $40 loan at 1% interest and then loan it back to her at 10% interest. If she takes that deal, please tell her to never invest anything.
And those fees you pay to the bank? Yeah, the rich customers that also probably own shares in the bank and benefit from those fees; well they just don’t pay those. Just you. You get hit with what is a ridiculous interest rate when annualized and make up half of the banking industries profits. Wasn’t usury a sin in the Bible? When will the bank be granted the authority to come break your legs if you don’t pay? CNN reported today that a man was arrested for unpaid student loans. Debtor's prison in the US?
Not enough yet?
The recession (financial nuclear bomb) brought on by those who couldn’t, wouldn't and didn't need to manage their risk probably affected many regular people's credit scores and often their homes. The average credit score has fallen by about 30 points but the banks still use the same equations as before 2008 to price risk. Your lower credit score now results in higher interest rates for them and high loan payments for you.
And those foreclosed houses? Large investment firms like Blackrock bought them en masse and now rent them back to the people that lost them to begin with. They used the misery of the little guy to take their assets and then profit and pass the returns up to those same high net worth investors.
All of this and a 15% tax return to boot? Fucking fabulous.
So guess which political party now wants to roll back the regulations and reforms enacted after the meltdown with the Dodd-Frank legislation? Yep, those guys. It is said an elephant remembers everything. There is at least one elephant with a selective memory though when campaign contributions are at stake. It is so bad that the $350 million plus that the financial industry spends on lobbying yields a better return on investment than any other single investment they make.
If you aren’t pissed, you should be. The system is set up so that whether you play or not, you are still passing money to the top of the Ponzi scheme. You are getting screwed like the last person to join a multi-level marketing company and at least then you get to buy a couple miracle cures that don’t work.
It’s time for a change.
Brian McKay is ranked in the top 5% of the world's financial professionals. When he started learning it took months just to figure out his financial calculator. He didn't realize it had stuck until he took that ridiculously hard Bloomberg exam. His goals in life are educating and empowering all of us regular people, being an awesome dad and someday actually start dating. His favorite My Little Pony is Pinky Pie (that explains it).
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