Bottom Line on Wall Street: Watch Your Wallets

By Robert Reich, Robert Reich's Facebook Page

26 August 15

hat’s happening to the stock market? It's lost billions over the last few days, then late this morning gained some back. The consensus view is global investors are panicked about (1) the apparent inability of China’s leaders to deal with China’s stock-market bubble and gigantic debt load, which could mean China’s economy is in even worse shape than commonly thought, and (2) the likelihood the Fed will raise interest rates in September – which would not just end the era of cheap money but cause worldwide speculators, who have borrowed cheaply in order to invest in high-risk but higher-return assets, to lose their shirts.

But that's not all.The immediate cause of drop was short-selling (i.e. betting the market will drop) by Wall Street and other global moneyed interests, who have been making a fortune for the last few years on market volatility – placing bets the market will rise (just before it does) and then betting it will fall (just before it does). These bets are self-fulfilling prophesies because so many pension funds, insurance funds, mutual funds, and sovereign-wealth funds follow the leaders – leaving small investors holding the bag. The leaders also have the benefit of inside information unavailable to most other investors (insider trading is now common on the Street, as the Securities and Exchange Commission and the federal courts have relaxed scrutiny.)

Bottom line: Watch your wallets.

Your thoughts?