Besides the pain or suffering caused by the financial markets, it is worth noting two other culprits in the “profit gap”. The most obvious is inflation and its wide swath of price hikes and recessive spending patterns it causes. I have been writing for nearly a decade about the erosive effects of pricing power upon the economy. To be sure, the most lasting net-effect of the bull market begun in 1982, and perpetuated with a vengeance since 2002, is the rising cost of goods, services, and commodities caused by an aggressive economic expansion and equities’ market generational bull phase.
According to statistics the rate of inflation is at its highest in more than 16 years, even when factoring in the regression in real estate prices.
The problem is so pervasive that it affects retail, wholesale, institutional and individual consumption, without prejudice.
At the risk of repeating my often-written refrain, rising costs influence raw materials, tuition, pharmaceuticals, energy consumption, industrial output, household food purchases, military spending, global trade, travel & leisure, etc., etc. It also plays a role in skewing the value of stocks either by restricting share price appreciation because of declining earnings, or by inflating prices because of artificial hyperbole associated with puffery and pricing power.
Which brings me to culprit number two in the saga of decimated financial markets, ethics.
Since the beginning of industrialized society, commerce and trade has been based upon the stability of the currency and the ethics and morals of the counterparties involved in a business transaction. My industry has imposed layers of rules and regulations, laws and governance, to provide for the security and safekeeping of the public trust in its financial institutions. The decades of confidence it takes to uphold these values and safeguards can be wrecked in a moment if only one party to the transaction acts deviously, mischievously or with malice. Too often, and too recently, we have experienced acts of untoward corporate and personal greed which shake the very foundation of this business compact.
An entire network of global commerce is dependent upon an adherence to strict codes of ethics, and a sense of fair play and morality.
I contend that the recent disruption in the financial markets is caused in part by a natural progression/regression lifecycle in financial instruments, but exacerbated by a breakdown in ethical conduct by institutions, themselves, during which they endeavored to inflate profits by manufacturing information, products, and revenue with blatant disregard for the public.
Is it possible that the actions of a few might tarnish the reputation of many who act responsibly to uphold those standards and practices? Might the after-effects of this breakdown in confidence change the dynamic, or postpone the timeline, of a natural cyclical order?
Though the entire system is not to blame, those who were charged with its oversight and execution certainly are, and should pay any price, and bear all the burden for its remediation.
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