5. Ineffective Financial Regulation
Financial regulators are prodigious at inventing new rules but much less proficient at enforcing them. In many ways, Europe’s crisis is just like the U.S.’s — a colossal failure by regulators to regulate. Rules are of no protection if they are selectively enforced or not enforced at all.
6. Over-Concentration of Financial Power
The Oscar-winning documentary film “Inside Job” was too angry of a film for me and badly missed at articulating the fourth-grade antics of Wall Street’s elite. Nonetheless, it explained how the U.S. financial services industry became too large too fast. What’s changed since then? More assets and power have been concentrated in fewer surviving firms, which has increased everyone’s risk — should one of these institutions fail. The problem of “too big to fail” still hasn’t been solved domestically or internationally.
7. Squandering Public Funds
Instead of letting troubled financial institutions or governments fail, regulators and quasi-regulators have thrown (and continue to throw) trillions of dollars trying to save them. In the U.S. it was a $700 billion bailout, and in Europe it’s already topped $1 trillion. These headline bailout figures, which are being funded largely by taxpayers, are probably much higher than reported. While financial bailouts in the name of saving humanity, or even a country, are excellent devices for delaying the inevitable reckoning day, they don’t completely stop its arrival. Furthermore, the financial liabilities associated with massive financial bailouts have already begun destabilizing the financial condition of world governments previously determined as “strong.”
8. Global Flood Into Gold
Regardless of whether you believe in gold as an investment, its substantial rise has been fueled, in part, by the failure of governments to prudently manage their finances. As a result, money is flowing out of stocks and into assets deemed “safe” like U.S. Treasuries, gold, precious metals and Swiss Francs. As a side note, I grudgingly use the deceitful phrase “safe haven” because it suggests a false sense of security. In reality, no single investment security or asset class is technically “safe,” no matter what persuasive marketers argue. Everything is subject to rises and falls at any given moment.
Ron DeLegge is the Editor of ETFguide.com and Author of ’Gents with No Cents: A Closer Look at Wall Street, its Customers, Financial Regulators, and the Media’ (Half Full Publishing, 2011). The book is due out in early December.
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