Wall Street brokers commonly refer to market theory, a high-sounding pseudo-scientific set of investment principles developed to explain and predict how markets work. Between themselves, the brokerage community refers to yet again another valued theory, but this one is called “the bigger fool” theory. Simply put, the bigger fool theory was articulated perfectly by P.T: Barnum: “There’s a sucker born every minute.”
For every winner on Wall Street you can find a loser. In fact, without losers, there can be no winners. Wall Street is a betting game; money is plunked down on the table and the winners take it all. Of course, the house always takes its cut, and brokers make commissions no matter what happens, win or lose.
Raising capital through public markets is a lynchpin of capitalism. Companies offering stock or bonds use markets to access funds made available by institutions and individual investors. Unfortunately, it is the individual investor that usually gets screwed and played for the bigger fool. This is not to say that all companies that sell stock are crooks, but it is fair to say that the markets are skewed in favor of the biggest institutional investors and when it comes to market manipulation, the little guy doesn’t have a chance; the game is rigged. Brokers and traders collude, conspire and manipulate prices every day. Tens of millions of trades are made daily; in a global marketplace, this happens 24 hours a day. The financial market is a global casino, and market theory is just an attempt to place a gloss of legitimacy on an opaque and complex gambling operation designed to fleece the public.
When Bernie Maddoff comes along and spends 30 years skinning his friends and their friends of their hard-earned cash, investors wrings their hands in anguish and cry, “How is this possible? Where was the SEC?” When it comes to Wall Street gambling, the SEC (Securities Exchange Commission) is lined up with the house. Former members of the SEC end up with top paying jobs at the very firms they used to “regulate,” a sure sign that the game is fixed. And at its best, the SEC can only track the biggest players with the most on the table. The individual investors have nobody in their corner.
One may ask how all this came to pass. The answer can be found in the nature of large systems. Any large system ultimately functions to preserve and enhance the power and authority of those who benefit from that system; it is simply the nature of institutional systems. Thus, the markets actually fulfill their mission perfectly. Despite appearances and conventional wisdom to the contrary, it is not the purpose of the market to spread wealth, maintain financial order, provide access to capital, or support the economy. The purpose of the market is to ensure that the wealthiest gain greater wealth, and that the powerful gain greater power.
Like many, my wife and I have lost a large part of what funds we have accumulated over the past 35 years together. We are not bad off, to be sure, but we’ll both be working hard for the foreseeable future. I thought I had learned my lesson in the 80s, but now I realize I did not learn it well enough. Turns out I am the bigger fool.
