The protest named ‘OccupyWallstreet ‘ has been on for over a month so far, and has somewhat spread all over the world. Surprisingly for a social demonstration targeting the world’s largest equity exchange, people do not hear much about it on the news, neither did the stock market react. The public reaction is one of confusion because the protestors aren’t really sure of the facts when questioned. Further more, they are not demanding any specific changes.
What is Occupy Wall Street about?
There are several reasons so far for these waves of protest. First, it started with a blog post by a Vancouver, BC based website, expressed an idea of occupying Wall street by setting up tents, kitchens and live in a park for some time. Owners of the blog post did not claim responsibility or leadership for this protest, and many joined basically because they liked the idea that they heard through social networking websites. The original protest were fostered by the frustration of tax payer money being used to bail out the banks and Wall Street.
Why is there limited effect from the protests?
So far there has been waves of demonstrations on the streets, press reports, but no real effect has been made. We believe the reason for this is that there is no clear aim of the protests. Furthermore, protestors are not sending any unified message about what they want to change. Many protestors do not fully understand the government stimulus and bailout programs, and thus cannot articulate their message. The slogan that seems to stick is “I am the 99%”.
Should there be a protest, what message need it deliver?
The US government and the Federal Reserve has taken action by increasing the deficit and printing money. The reason the leaders always give to justify their actions was to help the unemployed. But reviews of the last few years tend to indicate that banks and large corporations (through various bailouts, quantitative easing and stimulus programs) have been the largest benefactors of the programs. For example, The TARP program that helped companies such as AIG, General Motors and many small banks all of them poorly managed. There have been reports that the government has made a profit on their actions but this profit is so far fictional as it is held in equity on the books of the government. As of today, US Treasury still has 77% stake in AIG, 32% stake in General Motors, 74% stake in Ally Financial Inc, and equity in many other smaller financial institutions. That means every US tax payer has to bear the credit risks in these companies. The Federal Reserve created Maiden Lane II, LLC to help AIG. By purchasing unwarranted toxic assets from AIG , they secured the couterparty risk of the big financial institutions, like Goldman Sachs, which now could be paid 100 cents of AIG obligations to them instead of taking a large loss. The Fed has not been transparent as to the cash flows of the debt, and so far have not been paid back. AIG recently offered to buy back the debt.
The unemployment rate in the US has increased to nearly 9% in Feb 2009, and remained in the 8.7%-10.6% range ever since, and inflation has increased to over 3% including gasoline at almost 4 dollars a gallon. The stock market has rallied, high end home prices are setting records, and conspicuous spending by the affluent is very apparent, and executive earnings have been increasing at double digits.
Therefore, the message that needs to be delivered should really be that the government need to spend money on job creation.
- This means the fed should not print any more money, interest are artificially low enough, and only the traders will profit. Also there is a danger of more inflation and more bubbles if the economy is not allowed to stand on its own legs.
- The Federal government should balance its books and control its spending. They should be promoting infrastructure programs and energy refurbishing programs which can be sold to the private sector.