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Ambulance Chasing on Wall Street

Posted by Larry Doyle on April 12, 2010 10:58 AM |

What is driving our markets higher? A rebound in earnings along with a rebound in the economy, correct? Well, let’s take a quick look at corporate earnings.

Thanks to our Sense on Cents Hall of Famer and resident Economic All-Star David Rosenberg, we learn this morning that:

Financial sector profits have accounted for 85% of the overall increase in corporate earnings.

When I read this, I immediately think of the market akin to that gutless driver who jumps behind an ambulance as it screams down the street. Who is in that ambulance? Main Street. Who is in that car getting the ‘free ride’? Wall Street.

While there is plenty of legitimate and profitable business being transacted on Wall Street, there is also an enormous transfer of wealth from Main Street to Wall Street going on right now as well. How is this wealth transfer occurring?

1. A 0-.25% Fed Funds rate allows Wall Street banks to borrow money from savers for virtually no cost. Who are the savers? Main Street, especially those on fixed incomes, including the elderly.

2. The current structure of Wall Street with lessened competition has allowed for more price controls by the banks across a variety of products. Which products? Start with the rate on your credit card.

Who is promoting the transfer of wealth? The Federal Reserve, the Washington establishment, and the financial media are all very much promoting this wealth transfer by not calling out the banks. Why don’t they? Because they are in bed with and getting paid by Wall Street to keep quiet.

Thank you to David Rosenberg for highlighting the figure on corporate earnings. Why does it take a Canadian to expose the ‘ambulance chasing’ here in America?

LD

  • Ted K

    I like this post very much. David has taken a lot of unfair flack because of having the gall to tell the truth. With all the problems with municipal debt, there will be large cutbacks in jobs. There have already been huge cutbacks of public school teachers. And we still seem to think we have some “responsibility” to hold up the Eurozone. It’s borderline insanity. I think Mr. Rosenberg will get the last laugh though, but probably not a very enjoyable last laugh.

  • John

    I’m not an economist, but I have been in the market as a small trader for many years. Whenever you have more money chasing any product, the price of that product rises. Oil plummeted when the bank stocks dropped and large fund managers had to pull out of oil to cover their losses in the financials, thus less money chasing oil. Now that money is so cheap, there is once again more money chasing oil, and the stock market, and thus the price rises. The fundamentals don’t support oil being anywhere near 80 dollars a barrel just like the fundamentals don’t support the market hitting 11K. I know my example is a little off topic, but you get the idea.

  • Rough Rider

    We need to back one Senator with OneMessage, Clean Up Wall Street….






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