Wall Street is its own worst enemy, according to Tom Petruno of the LA Times (“Biggest Threat to Wall St. is the Enemy Within”). The enemy is not the occupiers of Wall Street or the regulators but the high-frequency computerized trading firms that comprise 70% of the market and cause the extreme volatility that is scaring off investors.
The big banks’ proprietary trading, which took hedge fund-like risks that brought those firms and the financial system to the point of collapse, will hopefully be reigned in by higher capital requirements and restrictions on the use of leverage. But so far, only one potential solution for the high-frequency sharks that dominate the market has been proposed: The European Union proposes to tax financial transactions. In addition to raising badly needed revenue, the tax would discourage high-frequency trading and calm the markets, in theory.
Wall Street banks, seemingly determined to show why they are their own worst enemy, are fighting this (and all attempts at regulation), saying they would just pass the tax along to investors and migrate to markets that had no tax.
Investors have registered their protest against Wall Street by pulling a net $83 billion out of U.S. stock funds this year. 52.3 million households still own $5.4 trillion in equity mutual fund assets. If they chose to occupy Wall Street, Petruno says, they would have a clear message for Wall Street: “Give us back a stock market we can believe in!” If that does not happen soon, there may be a run on those mutual funds.
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