Wall Street Wake-Up Call?

By Don Shaffer

I want to call your attention to a front page article in Sunday’s New York Times:

“A Secretive Banking Elite Rules Trading in Derivatives”

Please read this valuable article, if you have even the slightest curiosity about how our financial system really works.  It’s fascinating.  It’s depressing.  And it’s hopeful.

I say hopeful because the derivatives market will become more transparent as a result of articles like this.  More transparency will bring better pricing.  True market pricing will eliminate the biggest source of easy profits at the big banks, and reduce the size of the trading operations on Wall Street.  Less trading will force banks to focus on what they should be doing: safeguarding deposits, making loans, etc.

Critics will say that financial services make up over 8% of our economic output (GDP) in the U.S., and that what I am suggesting will hurt American competitiveness.  I don’t believe it.  And I think it’s a defensive argument.  If the big banks won’t allow for a competitive market in derivatives, it means they are desperate.  If that’s the case, then the 8% is not real and this kind of so-called “innovation” and “economic output” won’t last.

What can you do?  Map your money, for starters.  If you have a checking or savings account at a bank, try to find out what they do with your funds.  If you invest in the stock market, try to understand exactly what you own.  If it’s too hard to get answers, seek alternatives.  It is incredibly powerful to create a map of where your money goes.

For years, we at RSF have been saying that today’s financial system is complex, opaque, and anonymous, based on short-term outcomes.  So the New York Times article is not surprising to us (or to you probably).  As a next step in human evolution, the direction in which we need to move is to create financial transactions that are direct, transparent, and personal, based on long-term relationships.  Many things will change for the better if we can take meaningful steps towards this goal.

We believe there is incredible momentum right now, with more and more people questioning the dominant paradigm of finance.  On behalf of our whole team at RSF, we look forward to working with you in 2011 to use money for its inherent purpose: to connect human beings in relationships of love and service, while also stewarding the health and vitality of our planet earth.

Don Shaffer is President & CEO of RSF Social Finance.