Tuesday, January 4, 2011


With corporate America registering record profits (again), have you ever wondered how much money Wall Street and America's moneyed elite have taken away over the past thirty-plus years? Well, wonder no more. Check this out ...

A little over ten months ago I wrote about the failures of economic policies that have promoted deregulation, tax breaks for the rich, and debt driven growth. What we've ended up with is a two-tiered casino economy that is debt ridden and dependent on favorable legislation to survive. In the financial sector the market players who thrive in this economy shun wealth creation built by hard work and discipline and depend on outlandish gambles regularly backed by bailouts to extract wealth from the economy.

Market bailouts, dating as far back as the 1970s, and favorable legislation have done much to prop up profits and shift wealth to Wall Street and America's financial aristocracy.

For example, and most recently, Wall Street's claims on wealth have exploded and depend on political favors. These favors range from allowing mortgage bankers to make a mockery of property rights (MERS), to the Obama administration's bungled attempts at creating a soft landing for the banks in the housing sector (HAMP), to unfunded trillion dollar guarantees and record bailouts (TARP) for Wall Street and their pampered clients.

Main Street's share of income and wealth, on the other hand, has either stagnated or collapsed as Wall Street's quiet coup of policy making in America has helped block reforms that might protect the American taxpayer.

The results have been predictable and, if we look at claims on the money supply, are easy to track. Specifically, if we look at the claims on money made by Wall Street (M-3) over the past 40 years versus the claims made by Main Street (M-1) we see something rather interesting ...


Demands on U.S. Money Supply (select years)
Year       M-1                M-2                 M-3 
1972          $249 billion              $802 billion               $886 billion
1974          $274 billion              $902 billion               $1.070 trillion
1975          $287 billion              $1.017 trillion            $1.170 trillion
1984          $551 billion              $2.312 trillion            $2.991 trillion
1994          $1.150 trillion           $3.498 trillion           $4.370 trillion
2002          $1.219 trillion           $5.801 trillion           $8.568 trillion
2003          $1.306 trillion           $6.062 trillion           $8.872 trillion
2004          $1.376 trillion           $6.422 trillion            $9.433 trillion
2005          $1.375 trillion           $6.692 trillion           $10.154 trillion
2006          $1.367 trillion           $7.036 trillion           $10.299 trillion
2007          $1.367 trillion           $7.447 trillion                  N/A
2008          $1.600 trillion           $8.108 trillion           $13.835 trillion*

03-09         $1.577 trillion           $8.110 trillion                  N/A
04-9           $1.608 trillion           $8.364 trillion           $14.8 trillion*
12-09         $1.696 trillion           $8.542 trillion                  N/A
11-10         $1.832 trillion           $8.804 trillion                  N/A

Note I: In very simple terms M-1 is the category we use to measure what you and I have in our pockets and in our checking accounts. Essentially M-1 represents what Main Street has available to spend. Without getting into the details, M-3 represents what Wall Street spends or claims from the U.S. money supply. For more on money and how we categorize it click here
Note II: Keeping track of M-3 (as a data category) was suspended as a "cost saving" measure by the Bush administration in 2006. I discuss this in Chapter 12 of my book, "From Deregulation to the Mother of all Bailouts" in The Myth of the Free Market.
Note III: * denotes "unofficial" M-3 tracking sites. Click on the links.

Specifically, the claims on money by America's biggest financial players have soared (M-3), and went from a factor of roughly 3.5 times what Main Street claimed (M-1) in 1994 to 7.5 times in 2006 ... to 8.6 times in 2008 ... and a whopping 9.25 times by April of 2009.

So, what does all this mean?

First, it means that instead of running parallel to each other (at a historical ratio of 3.5 to 4 times greater) like this  =, the gaps between what Main Street has (M-1) and what Wall Street claims (M-3) now diverge like a sideways chevron like this < . This development is possible only because Washington has consistently bailed out Wall Street's ill-advised activities over the past 30 years.

Second, it helps us see that the bailouts, guarantees, and other market programs were never designed to save distressed homeowners, or the American taxpayer. Instead, favorable legislation and trillion dollar bailouts - which actually began in the 1970s and 1980s - have always been designed to keep money pumping into Wall Street.

Finally, it means that the earnings and income gains of Wall Street, and America's biggest market players, are not tied to the mythical "invisible hand" of the market. From favorable legislation, to tax breaks and tax write-offs, to deregulation, globalization, and the constant attacks on unions and minimum wages, the earnings and wealth gains that America's wealthiest classes have seen over the past 30 years have come off the collective backs of America's middle class.

Don't believe me? Check out personal debt loads in America. In fact, take a look at what has happened to personal obligations and government debt loads over the past 30 years.

At the end of the day, the reckless gambles made by the high rollers on Wall Street have been rewarded, under the guise of the saving the system, while Main Street is forced to absorb the costs of successive bailouts and mounting deficits. 

- Mark

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