Recently I completed a writing assignment on marketing material for a former Wall Street buy-side investment banker that now runs his own firm. It took many turns sitting with him in his office to get his message across, which was this: Americans are getting screwed by the investment products they buy.
You can imagine that a copywriter would have some trouble with that messaging. It goes against the grain of everything we’re told to believe. That investing our money is good for our future and good for the economy. But what if all that were false.
My client pushed me to put his frustration and anger into plain words. He worked 20+ years buying and managing investment portfolios for companies whose names you would surely recognize even if you do not follow Wall Street news or economics.
It was tough for me to conceive how far he wanted to go in indicting the very industry that he served all those years. But his take on Main Street investment advisors is that they are all basically hucksters moving money around to make commissions. The typical investor, he claims, is behind by 3-5% before their money even lands in a mutual fund or other investment vehicle.
This is not some liberal guy like me talking about the investment world. This is a guy who worked for topline, tough Jewish bankers in an investment world where frills were not the object. The main goal was to make money, and that was that.
The difference between that world and what everyday investors see is night and day, he contends. “Buy-side” investment is all due diligence, trends and purchasing the best investments in stocks and other products money can buy.
Consumer side investment by contrast is mashing together a bunch of shit with the good stuff and convincing people to buy it.
Mish mash investments
Because by contrast, consumer side investment is a mish-mash of good and bad investments lumped together. In order to get to the good stuff, in other words, your money has to support a lot of bad deals. You wind up with a massive averaging effect that looks good on paper at times, but most often is not.
Meanwhile a big chunk of the money gravitates to the companies putting these averaged investments together. Perhaps it’s all a buddy system of sorts, or a quid-pro-quo system based on hedging bets. But you must understand that the best money players also know how to play both sides of any deal. They make money when you lose money because they’ve also got bucks playing on the counteractive market forces. Sometimes they even force the deal when an opportunity presents itself.
Giving birth to money
Early in my career, I was a direct witness to the birth of a major investment firm that essentially helped invent investment trusts and mutual funds. I saw how basic and earthy the process of creating and selling investments really was. It was like a midwife managing a woman with labor pains… with people running around trying to figure out the best way to bring something to life. Then they’d jump on the phones and push, push, push. Then the product flomped on the market and people would rave that it generates interest. Then they’d get busy fucking with another set of financial products to make a baby with even more investment promise. That’s how the investment industry works.
Giving birth to nations
It happens even at the world political level where investing in wars reaps giant profits for companies willing to sell to anyone willing to buy. The process even gives birth to new nations (whose resources are then plundered) while bankers and globalized companies act as parents in the process.
There are other family alliances as well. Some of those rest with dealmakers and stockholders who also have skin in the game. Call them the Bad Uncles, if you like. Sometimes they call in their favors, essentially claiming the first-born for their own.
Don’t pretend it doesn’t happen. Look at Putin’s actions in the Ukraine. That’s a patriarchal approach to world power, and a tradition that has not vanished over the millennia. So much of our economic and political system worldwide is based on an elaborate game of “Who’s your daddy?” We all want to believe that our “parents” have our best interests in mind. But there are a lot of really bad parents in this world. So who are we trying to fool? Ourselves, mostly, into thinking all will be well without questioning why daddy seems to sneak around so much.
Recently I’ve had conversations with friends that work in the investment industry. They’re nervous and angry that the federal government is determined to place a new regulatory layer over the investment game. It would monitor transactions and ostensibly try to make investment a more level playing field.
But if my conservative friend who emigrated from Wall Street to run his own small firm to try to benefit his stable of investors is correct, the real reason investment industry “insiders” at brokerage firms and other financial outlets is nervous is because they are afraid to be exposed for what they really are. Pawnbrokers for a crooked dynamic. And they don’t want some new brand of daddy watching what they’re doing.
None of my associates are crooked by nature. They’re not by nature “bad kids.” They run their local service organizations and serve on their church boards. So it’s not that they are intentionally scheming their customers. But they may well be unintentionally scheming their customers, and in some ways that’s even worse.
We’re talking about a skewed system here that serves as the foundation for all of American business and the economy. We keep hearing warnings that another recession will occur someday soon. There are apparently more props than real foundations in place when it comes to investments, interest rates and borrowing. When the economy last crashed did you notice what happened? Banks clamped shut on loans. Small businesses struggled for cash flow. Even devout conservatives wondered what the hell was up when the shit last hit the fan. It all happened under Republican watch. That’s not supposed to happen.
Yet when Democrat spending attempted to turn the economy around, and the auto industry and Wall Street banking got lifted back on their feet, there was low grumbling about how messing with the economy and “printing money” were never good things.
Going for the gold
Every week on both conservative and liberal talk radio you can hear ads for companies selling gold. They claim that the economy is indeed headed for serious trouble in the near future, and that owning gold is the only sure bet against economic collapse.
Those ads may have a point. It’s pretty frustrating for small investors to watch 50% of their entire holdings disappear overnight. Yet we must also consider that the last recession, while gutting the middle class work force and small investors, did not seem to greatly effect the top 10% of the American economy. A few traded in their SUVs for vehicles with better gas mileage when the price of gas reached $4.00, but that’s because the truly wealthy are also often truly cheap when it comes to spending. Hence the doomed philosophy that the so-called “job creators” prized and touted by Republican interests so often fail to deliver on that promise. Most kids grow up living on their father’s pocket change as allowance. That’s about the same dynamic that went on with the American economy when things got tight due to the recession. The only hope for recovery and change was shaking loose the pockets of the government (whom conservatives hate to call daddy) because the rest of society had a firm grip on every dime they had.
Losing house and home
Meanwhile foreclosures mounted and the real estate industry crumbled for a time. One must suspect that the same internal-trading dynamic that runs the investment world also governs the real estate game.
Indeed, I also recently met a man whose formula for Sold-to-Price or Sold-To-Value home performance delivers a 99% success rate. You’d think the realty business would love that kind of value delivery. Yet realtors hate the guy. And he hates realtors just like my buy-side investment friend hates commercial mutual fund salesman. My real estate friend’s contention is simple: Realtors deliver very little value for the work they do. Earning 5% commission for selling a home is thievery, he maintains. So you can see why realtors hate him. Like my hard-ass investment friend, he’s too damned honest.
He’s also tried to undercut the game much like the For Sale By Owner industry did thirty years ago. But the dynamics of real estate are so strong no one can really cut through the bullshit to convince people to try it any other way. There’s a big margin built into the system and no one is really willing or capable of shifting that dynamic in any substantial way.
So we have an economy based on naive presumptions. It’s not truly a free market in the sense that the dynamics are free and available to all who participate, and we all are forced to do so. Most of the money sucked out of the system goes to the providers and commission-makers while those who caught in the daily/yearly backwash wind up with $400,000 houses and investment portfolios that have not really increased in value for the last 10 years. In fact most have declined. The appearances that investment portfolios have “rebounded” are, in a sick sense, a desperate illusion compared to the amount of wealth that has migrated to the richest segments of society. Again, we’re talking pocket change compared to daddy’s monthly income.
The daddy business
I manage my father’s money. He and my mother wisely saved like beavers for 10 years, then purchased long term care insurance policies for their old age and watched as my father had a stroke and my mother died of cancer. It’s been my job to protect his principle while paying his bills and keeping him in his own home in the 10 years since my mother died. At one point when the long term care insurance was going to run out (my father outlived both their policies) it occurred to me that I had better create a secondary source of income to replace that money. So I pushed my investment guy to figure out a way to do a dividend distribution plan and it took two years to build the necessary equity by putting money into a fund that now generates a 7% return. That’s $2000 a month that would not be there had I not thought up the idea to make that happen.
In the end, of course, we’re all responsible for our own investment strategies. No investment advisor can make those decisions for you. Or can they? The real dynamic is that mutual fund managers push investments and combine products in ways that investors seldom understand. Then those who sell those investments make recommendations to buy or sell. It’s a massive veil of interests, commissions and returns.
Protecting your interests?
What I’m saying is that the government is probably attempting to act out of conscience when it comes to what’s happening out there in the economy, and investments, and who is really profiting from it all. Conservatives absolutely hate when the government gets involved. Yet real conservatives like my Wall Street client also know that the game is totally rigged against everyday investors. But people who are doing fairly well despite how the game is rigged tend to keep their mouths shut and are happy to take what they can get. But a few, like my client, are sick and tired of watching people get screwed time and time again. It’s like the Catholic Church finally having to admit there is a tradition of child abuse going on within its priestly ranks. No secrets last forever.
In the long run, doing the right thing is neither a liberal or a conservative motive, you see. That’s plain good conscience. Which proves that in the end, the most arch conservatives and devoted liberals are not so far apart in philosophy. I think that for better or worse, President Obama has tried to strike an uneasy balance in the conduct of his Presidency. As it has turned out, he appears on some fronts to be someone everyone loves to hate.
He knows the Wall Street crowd and has had to play their game along with them. He actually knows how to play the game better than some of the conservatives, and that pisses them off.
Yet he also never over-delivers on his liberal instincts. Even Obamacare, his pet project, gave more to the conservative side of the equation than it took from the insurance companies. He gave up the idea of Public Option on hopes that the few liberal tenets of the plan such as eliminating pre-existing condition clauses could be implemented. They were, and the Republicans got their way in protecting insurance companies by allowing them to implement super-high deductibles on top of the premiums they collect. Obama’s answer was government subsidies. What an ugly game of Father Knows Best.
It’s all the same game
What Obama did recognize is that the health care game is rigged just like the investment world, the real estate racket and every other piece of economic infrastructure. He tried to change the rules and people don’t like it when you mess with the system. Just ask the mafia and the CIA and all those zealots behind the scenes who actually run our foreign affairs and by proxy, our economy. They killed the Kennedys and Martin Luther King, Jr. over matters of conscience and probably even whacked their recent hero Chris Kyle for going “off script” in some way unbeknownst to the rest of us. Messing with your daddy is always a high stakes game.
That’s the really tough news on the economy, investments and who is really profiting. It’s certainly not you and me. But try telling that to your pappy. You’ll likely get the back of the hand, or worse for speaking up.