Nearly three years after the worst economic downturn to hit America since the Great Depression began, politicians, economists, business leaders, and commentators still are debating how to get this economy moving again. Unemployment is stuck at 17.5 percent if you look at the broad measure that includes discouraged workers and labor force dropouts. Business spending is stagnant. GDP growth, even though it is artificially inflated by government statistical games, is weak. Consumer spending is weak. Lending and borrower demand is stagnant. Main street banks and businesses are still hurting and afraid to take on any risk. Even state and local governments are slashing jobs and cutting budgets.
The only groups doing well are the federal government and Wall Street, which is no coincidence since they are one and the same entity. Yes, that’s right.
It’s well known that the federal government and the Federal Reserve bailed out Wall Street. What isn’t common knowledge is that the existence and daily operations of Wall Street, the Federal Reserve, and the federal government are inextricably connected.
They have a deeply symbiotic relationship and need each other to survive. Even as Wall Street howls in protest over financial reform and politicians campaign against Wall Street, they need each other to survive. All of this sound and fury back and forth is just window dressing. Wall Street is no longer a bastion of capitalism. On the contrary, it is both a facilitator and a dependent of the U.S. Treasury department and the U.S. Federal Reserve Bank.
The bankers who run Wall Street are not entrepreneurs or even true business people. They are much more like a royal aristocracy who pay themselves millions of dollars that essentially comes directly from the U.S. taxpayers via the Treasury Department and the Federal Reserve.
Why does this left-wing government, which supposedly is hostile to Wall Street, let this happen? The bottom line is that they have no choice. Wall Street spends tens of millions per year on campaign contributions and lobbyists. The Treasury and the Fed need Wall Street to keep the government bond market functioning properly. This is critical to funding everything that the government does.
Wall Street also creates the appearance of a transparent financial market for everything from stocks to commodities to corporate bonds. Of course the market is anything but transparent, but Wall Street and their facilitators and the Fed, Treasury, and the SEC have a vested interested in making people believe that it is.
If investors, especially foreign investors, lost confidence in our financial markets, our entire system would collapse. Like it or not, Wall Street, the Fed, and the U.S. government are joined at the hip.
The unfortunate consequence of this is that you need to go outside of Wall Street to find real capitalism and entrepreneurship. Private companies typically cannot rely on government backing. Small and mid-size private businesses have the real risk of failure. They are real risk takers. In the market for private capital, there is no reward without risk.
The good news is that the rewards for taking risk in that market can be larger than anyone ever dreamed. This is especially true in technology. Even during this terrible economy of the past few years, investors in private technology companies such as Facebook, Zynga, Mint, Linkedin, Quora, Twitter, Groupon and many other businesses have reaped extraordinary returns.
It can happen outside of technology as well. Investors in recent independent films such as the Twilight saga, the Blind Side, and Paranormal Activity have made fortunes. Private equity investors focusing on below-the-radar, old-economy private companies have been earning many multiples on their money in the past few years as many of these businesses have been deeply discounted below their fair value.
Wall Street typically doesn’t offer these returns to investors, unless you bought at the bottom in March 2009, because the game is rigged. The big banks and traders have all the advantages. They sell Wall Street and being a level playing field because you can see the prices trading every day, but that description is far from accurate.
Wall Street shows you the price of everything, but the value of nothing. Regular investors are limited in what due diligence they are even allowed to do on investment in public securities. Wall Street insiders don’t follow those rules, and they never get caught. How many big bankers have gone to jail even though they caused the financial crisis? If you answered zero, you would be correct.
The bottom line is that if you want to have a chance to make a lot of money, you’re better off investing in a private company on which you can do as much due diligence as you want and, even better, you may personally get to know the people running it. Of course there is also the risk that you may lose money. Any investment in a private company whether small or large, no matter what industry, and no matter how much due diligence you do, is a risky bet.
However, you will at least have more control over your own analysis rather than just accepting what is spoon-fed by Wall Street and will benefit more on the upside if the business does well.
Admittedly, I’m biased in speaking about this topic. I worked in private equity, finance, and banking for 15 years. I did not work for any of the big Wall Street banks, but I did business with them all the time. I left that business two years ago. Today, I’m a co-founder of a software business called CapLinked.
CapLinked is a secure, collaborative network for private companies, investors, and advisers to interact with each other. Companies can use CapLinked to raise capital, do investor relations, and share information with their board, advisers, and key employees.
Investors can use CapLinked to manage deal flow, close deals, manage their portfolio, and share information with their companies and their advisers. Advisers can use CapLinked to manage their deals and share information with their investor and company clients.
I’m passionate about helping private companies, investors, and their advisers. Capitalism is what this country needs to get things moving in the right direction. Wall Street is corrupted by its connections to and dependency on government.
Real capitalism is happening on Main Street. CapLinked is a tool that can help Main Street businesses, their investors, and their advisers to succeed. That’s why I co-founded this business and why I’m writing about it. It’s currently free to anyone who wants to use it. Please take a moment to check it out if you think it’s something that might be valuable to you or someone you know.