Is Wall Street Worth Saving?

I have always wondered how great civilizations simply disappear, only to be excavated thousands of years later by archaeologists revealing impressive mathematical and engineering marvels and elaborate and advanced construction projects.

As I begin to understand how Wall Street and the world of high finance works, I have begun to understand how civilizations must all eventually collapse. Civilizations crumble under the pressure from the sheer size and complexity of the organism it creates--itself.

I beg anyone to try to read and understand this article by the the International Monetary Fund regarding hedge funds. Pay special attention to how hedge funds make their 50-300% returns on their investments. They leverage their complicated derivative investments through the utilization of margin accounts at investment banks to the tune of 30-50%. Let me put that into understandable language.

Hedge funds often invest in derivative securities. They don't buy a stock for $100. They buy an option to buy a stock at $10. This way, they could invest $100, but control $1000. This would be a 10:1 leverage position. But their leverage doesn't end there. Instead of buying their options for $10, they borrow $9 from investment banks, (who borrow it from the Federal Reserve) and invest $1 of their own. Now the leverage position is 100:1.

This is sheer insanity. I can't believe this is the underpinning of capitalism. By a 100:1 ratio, the Federal Reserve is financing gambling with incredible stakes-the future of western civilization.

I am scared to say this, but the world of high finance is going to bring America to her knees. I wouldn't even know where to begin regulating this fiasco. Do you eliminate leverage accounts? If so, where do you stop? Leverage is the key to the capital markets. It is the key to our banking system. Once you begin to regulate, the financial capital of the world will cease to be New York City, but Tokyo, Shanghai, Dubai, or somewhere that has less regulation and less taxation.

In summary, I think civilizations begin to crumble the moment investment moves from an advanced civilization that is focused on stability to a civilization interested in growth. 

Today, America is more interested in stability than growth. American politicians are more interested in the security of its citizens (Social Security, Medicare, Universal Health Care, etc.) than in exploiting its natural resources for job growth. Capital flows to the area with the lowest regulation, lowest taxation, and the highest safety. Unfortunately, America is failing on all three fronts. 

I wonder who will discover America in 1000 years and say, now there was a great civilization.