4 Secretive Ways Wall Street Extorts You
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2. The biggest banks and their hedge fund partners engage in high-speed trading that rips off everyone who has money in pension and mutual funds.
In doing research for my latest book, How to Make a Million Dollars an Hour: Why Hedge Funds Get Away with Siphoning Off America's Wealth I came across the incredible phenomena of high-speed computer trading. Wall Street makes somewhere between $5 billion and $20 billion a year using ultra-fast and expensive computers that can execute millions of trades per second.
Why make so many trades so quickly? You may find this almost impossible to believe, but by being able to trade in nanoseconds, the high-speed computers can "see" when you're about to buy a stock, get there before you and then resell it back to you for a few pennies more. Between the time you press the "buy" button to the time your trade goes through, the price is bumped up a few pennies by these automated high-speed trading systems. The same goes for your mutual and pension funds. When they buy or sell stocks in your behalf, the high-speed computers are waiting to pounce in order to extract a few pennies from each and every trade, just like a sales tax -- except that it goes into Wall Street's ever deepening pockets.
3. Insider trading is yet another hidden tax.
The U.S Attorney's office in Manhattan has nailed over 70 hedge fund employees on charges of insider trading. Since these cases are extremely difficult to prosecute, it's reasonable to assume that we're seeing a very small tip of the corruption iceberg. No doubt there are hundreds of other culprits, if not thousands, throughout Wall Street who are illegally profiting from insider trading.
But who's the victim? You are. Again, it's likely to come out of your pension and mutual funds. When a Wall Street money manager makes a lucrative trade based on illegal insider information, those on the other side of the trade are worse off. Either you don't get the upside or you are stuck with the downside. When the definitive history of this period is finally written, it may show that most, if not all, of the super-profits enjoyed by hedge funds and the proprietary trading desks of too-big-to-fail banks over the past decade came from illegal financial machinations.
4. The biggest tax of all? As Wall Street grows larger, economic growth is harmed, thereby killing jobs, decreasing tax revenues and provoking debt crises.
Andrew Haldane, a key regulator for the Bank of England, reports on an amazing study which shows that as banks grow larger and more concentrated, economic development is harmed. "There is a threshold at which private credit-to-GDP may begin to have a negative impact on GDP growth," writes Haldane. "That threshold is found to lie at a private credit-to-GDP ratio of around 80-100%."
Unfortunately, our private credit-to-GDP ratio is about 200 percent, meaning the private debt created by banks is twice the size of our economy and doing more harm than good. Let me put this crudely. When the financial sector grows too large, it sucks the economic life out of the economy. Its hidden taxes siphon away investment money from other sectors that could use it much better. It milks consumers and lowers effective demand. And it uses its too-big-to-fail status to take excessive risks to boost profits, knowing full well that any major downside --- the inevitable failures -- will be covered by the taxpayer.
Wall Street's Hidden Taxation has Too Much Representation
These hidden taxes exist because both political parties are snuggled under Wall Street's blanket of greed. Instead of blaming Social Security, Medicare or Medicaid, we need Washington to finally admit that the financial problem is Wall Street. These banks and hedge funds are much too large. The hidden taxes are unfair and undemocratic. It's time to reclaim them.