Friday, October 28, 2011

Wall Street's Supreme Accomplishment?


"The machinery by which Wall Street separates the opportunity to speculate from the unwanted returns and burdens of ownership is ingenious, precise and almost beautiful.  Banks supply funds to brokers, brokers to customers, and the collateral goes back to banks in a smooth and all but automatic flow.  Margins - the cash which the speculator must supply in addition to the securities to protect the loan and which he must augment if the value of the collateral securities should fall and so lower the protection they provide - are effortlessly calculated and watched.  The interest rate moves quickly and easily to keep the supply of funds adjusted to the demand.  Wall Street, however, has never been able to express its pride in these arrangements.  They are admirable and even wonderful only in relation to the purpose they serve.  The purpose is to accommodate the speculator and facilitate speculation.  But the purposes cannot be admitted.  If Wall Street confessed this purpose, many thousands of moral men and women would have no choice but to condemn it for nurturing an evil thing and call for reform.  Margin trading must be defended not on the grounds that it efficiently and ingeniously assists the speculator, but that it encourages the extra trading which changes a thin and anemic market into a thick and healthy one.  Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot." - The Great Crash: 1929, John Kenneth Galbraith (1955).

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