How the 1% hijack your wealth

How the money manipulators are ruining you

Part 2

The Occupy Wall Street movement has some momentum and there are people—Dr Ravi Batra for instance—with a good track record of predictions who believe that the time has come for such a movement to change the world. The non-productive money manipulators have broken the free market capitalist model and pay-back time could be nigh if the protesters can get their act together.

Where I part company with the Occupy Wall Street folk is that I don’t believe that capitalism is the problem. Capitalism works extremely well when adequately contained. It’s the failure of governments to regulate the money-go-round that’s the problem.

Here’s one of the ways the fat cats are creaming the system and destroying the world’s economy for the rest of us.

“Window Dressing”

The deceptive practice of some mutual funds, in which recently weak stocks are sold, and recently strong stocks are bought, just before the fund’s holdings are made public, in order to give the appearance that they’ve been holding good solid stocks all along.

The deceptive practice of using accounting tricks to make a company’s balance sheet and income statement appear better than they really are.

The money managers borrow short term to take big risks without the shareholders knowing. Then they pay back those borrowings prior to the balance sheet publication. Their bonuses are earned on short-term gains so their interests are not in line with the interests of their clients who want medium to long term gains on their investments.

The Wall Street Journal found such activity among “primary dealers,” major banks and securities firms that trade directly with the Federal Reserve are borrowing big during the financial quarter to invest in short-term high-risk investments to maximize their bonuses. When the end of the quarter looms they temporarily reduce borrowings by substantial amounts to hide their dodgy dealings.

The Wall Street Journal uncovered this dodgy practice at MF Global Holdings Ltd, who are filing for bankruptcy protection.

There’s an excellent article at Golem XIV explaining in depth some of the murky ways this practice is used with particular reference to MF Global.