State of Innovation

Patents and Innovation Economics

Wall Street is Un-American

Over half of the earnings of the S&P 500 companies are derived from foreign operation, according to Stuart Varney.  As a result, the financial returns of these companies are not directly related to the UnitedState’s economy.  This is part of the reason why the stock market is no longer a good a leading indicator of the American economy.  There are a number of other differences that have led to a decoupling between main street and wall street.  For instance, large companies have been able to tap the Federal Reserve for short term loans – see Federal Reserve Discloses $2.3 Billion Short-Term Loan to Harley-Davidson – $3.3 Trillion in Total to Others.  Note that some of the companies the Fed bailed out were not even American companies.  Wall Street was not only able to obtain short term loans from the Federal Reserve, they received TARP funds, and they have been able to use these funds to make money on carry trades.[1]  It is clear that the interests of Wall Street banks and large multinational companies are not aligned with America’s.

Despite this lack of alignment in the economic interests of the American people and Wall Street, the Bush and Obama administrations and Congress only consult large businesses and Wall Street when setting policy.  For instance, the Senate refused to hear testimony from individual inventors and startups when debating the “America Invents (not) Act.”  This Bill contains a special provision for Wall Street that allows Wall Street banks to attack “business method” patents that they are infringing.  This doesn’t extend to any other industry, only business methods—another Wall Street giveaway.  Wall Street is not interested in competing based on merit, it wants to compete on political connections and pedigree, which is clearly un-American.

Securities laws have consistently skewed the rules to favor large Wall Street firms, including Sarbanes Oxley and Dodd Frank, which are so complex they drive out startup and small investment banking firms.  The law on retirement saving was another big give away to Wall Street.  These laws pretty much restricted IRAs, etc. to investment products sold by Wall Street.  This drove investment dollars from home towns to New York to the detriment of main street and America.  Wall Street also has a vested interest in government debt, since they get a commission for placing government bonds and make commissions every time they are traded.  According to Charlie Munger 25% of the United States GDP is now earned by finance companies.  Finance companies facilitate purchasing and investing transactions the do not make anything and only provide finance services.  When they earn 25% of every dollar in the country, you can be assured that things are seriously out of whack.[2]

The interests and performance of Wall Street are no longer aligned with the interests of the American people.  Wall Street is un-American.

[1] A carry trade is when the Federal Reserve allows banks to borrow money at a lower interest rate than they can loan it out at (risk free).  The most egregious example is when political powerful banks (corporations) can borrow from the Federal Reserve at a lower rate than short term Treasury Bills are yielding.  This takes absolutely no intelligence to make huge amounts of money, as long as the Federal Reserve will loan out money.  This is how the TARP banks have been able to pay back their TARP loans.  However, it is just a fraud and the cost of this fraud is being paid for by the American taxpayer/worker.

[2] This might be okay in a small banking oriented country, such as Luxenburg, but is devastating indictor for a large country like theUnited States, which requires a diverse economy.

June 2, 2011 - Posted by | Uncategorized | , , , , , ,

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1 Comment »

  1. [...] Some people excuse the theft of other people’s inventions, because they say patents are monopolies and anticompetitive.  This is like arguing that property rights in, for example, cars is a monopoly and prosecuting car thieves inhibits competition in the market.  There is no such thing as a “free market” separate from property rights.  Creation is the foundation of property rights and patents are awarded to the creators of inventions – which, by the way,  is why the America Invents (not) Act, HR1249 and passed S23’s, is Un-Constitutional. [...]

    Pingback by Patent Reform a Sham: Data Treasury Story Exposes True Motives « State of Innovation | June 6, 2011 | Reply

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