A friend of mine showed up, in a new pickup. I asked him, “Where did you get the money for that?” He said, “I borrowed it of course.”
But isn’t there something wrong with that picture? We are being assured every minute of the day that the “credit markets” are drying up. No credit is available. The government must immediately steal $700 billion from Main Street and give it to the nice, smart, rich folks on Wall Street. This will clear the clogged debt marketplaces and happy days will be here again.
So I asked my young friend, “Who gave you a loan?”
He replied, “Weokie, of course.” Weokie is a credit union, and like all credit unions, it is owned by its depositors. Weokie does not sell its loans to NY banks or securitize them for the derivative market. It holds its loans, and in the (by Wall Street standards) quaint, old fashioned way, collects the interest, and puts that money back to work in the local economy.
And so it comes to pass that unlike the nice, smart, rich folks on Wall Street, its balance sheet is not loaded up with junk mortgages and toxic bonds and risky derivatives.
Hmmm. . . do you suppose white collar Wall Street could take a lesson from blue collar Weokie? Well yes, they could, but pigs will fly before that happens, especially if they are successful at blackmailing Congress for $700 billion.
If the big international/trans-continental banks stop loaning money, maybe there is an upside for our local economy.
- Every penny invested in the speculative bond, mutual fund, and stock markets is money that isn’t available to invest in the local economy. When people shift their money from trans-continental banks to local banks and credit unions, their money goes to work in their own neighborhood and strengthens the real, local economy where they live and work.
- Retirement plans invested in stock market mutual funds and money market accounts benefit Wall Street by beggaring Main Street. If workers demand new retirement plans, invested in insured CDs at local banks and credit unions, then their retirement money goes to work immediately in the real, local economy.
I have long thought that the primary political justification for 401-k plans was “welfare for the stock market”, not a secure retirement for workers. Perhaps this crisis will help others come to this same realization.
- There is a difference between savings and speculation. “Savings” refers to money in the bank or credit union.
Savings are loaned out by banks and credit unions to fund activities in the real economy — business operations, construction, house mortgages, car sales, etc.
- “Speculation” refers to money in the stock market, where you buy stocks or mutual funds on the speculation that they will eventually go up in price.
Money invested in the speculative stock, mutual fund, and bond markets goes to other speculators, and doesn’t necessarily furnish even one dime to the real economy. When you buy a share of a mutual fund, the money isn’t divided among the companies represented in the stock portfolio, for them to use for real economic activities. No, it goes to some other speculator, who sells you some of his or her shares. No real work is ever done with this money.
The speculative market is therefore a parasite on the real economy, because the real economy is where the wealth is created. Parasites weaken, and often kill, their hosts. Ask any dog with worms about that. The effect over time of our present financial system is to strengthen the parasitical speculative markets, and weaken the real local economies.
So there may be a bright side to this crisis that the financial masters of the universe don’t like and is the real source of their fear-mongering: the strengthening of the local financial markets and the real economy, and the beggaring of the parasitical, speculative markets of Wall Street.
- Employees should contact the managers of their 401-k/403-b plans and demand the option of putting their retirement funds in CDs or other similar insured accounts at locally owned banks and credit unions.
- Moving your money out of the stock and bond markets and the big national banks and into local/regional banks and credit unions is an important and effective way to strengthen your local economy.
Going forward into the peak oil decline years, strong local economies are all that stand between us and collapse. Wall Street may have been an amusing and tolerable parasite to the present time, but since one result of peak oil will be “less wealth”, we don’t have money to spare for the excesses of Wall Street. One of the economic lessons of peak oil is — “beware of parasites on your economy.”