10 signs Wall Street’s soul sickness grows worse

The Dow may have hit huge highs, but the rally's hiding huge risks and has even been considered a "ticking time bomb." World's central bankers are warn that cheap money's blowing a new asset bubble. Even the world's top market experts warn of this "credit supernova."

By Paul B. Farrell
Feb. 5, 2013, 12:02 a.m. EST
Market Watch

SAN LUIS OBISPO, Calif. (MarketWatch) — Yes, the Dow and S&P500 hit new highs. But the rally’s hiding huge risks: “GDP turns negative as U.S. economic recovery stalls,” screams one headline. Another hears a “Ticking Time Bomb.”

World’s central bankers at Davos warn cheap money’s blowing a new asset bubble. Dr. Doom, Marc Faber, “loves the high odds of a ‘big-time’ market crash.” Another, Nouriel Roubini, says “prepare for a perfect storm,” while Bond King Bill Gross sees a “credit supernova” dead ahead.

Rally? Bubble? Crash? Global? Is the economy “peaking?” Are we on a long, slow-growth downhill slide to a 1% GDP? Is our banking system infested with a soul-sickness virus? Is Adam Smith’s capitalist ideal turning against our markets and economy, accelerating the odds of more brutal competitive wars over an ever-shrinking, low-margin profits pool?

The answers became obvious in a disturbing new comment from Seth Godin, best-selling author of “Unleashing the Idea Virus” and one of America’s leading minds: “If, 70 years ago, you asked Henry Luce, ‘What is Time magazine for?’ he’d probably talk about setting society’s agenda, capturing the attention of the educated and powerful and most of all, delivering the best weekly news package he could. Today, the answer is clear. The purpose of the magazine is to make as much money as possible. Everything else is in service of that goal. It used to be that the profit enabled the magazine to reach its goals. Today, the goal is to reach the profit.”

Profits, profits, profits: Godin warns that our obsession with profits is infecting the entire American culture. Godin is onto something. Ask yourself: Has the decline of America’s GDP something to do with our addiction to profits backfiring? Has our obsession with profits come at the expense of our nation’s humanity? Are GDP, profits and capitalism now America’s “moral compass,” the false god Jack Bogle, Vanguard’s founder, wrote about several years ago in his classic, “The Battle for the Soul of Capitalism”?

How Wall Street amputated Adam Smith’s ‘invisible hand’

Godin’s perspective echo the predictions Bogle made near the 2008 crash: Adam Smith’s “invisible hand” is no longer driving “capitalism in a healthy, positive direction.” A “happy conspiracy” of Wall Street, Washington and Corporate America is spreading a “pathological mutation of capitalism,” driven by the many profit-addicted “invisible hands” of this new “mutant capitalism,” replacing Adam Smith’s ideal from 1776, the original soul of democracy and capitalism.

Today as we stare at these three macro trends — the declining GDP, America’s all-consuming obsession with profits and Bogle’s diagnosis of a “pathological mutation” driving the American economy — and we can easily see that Godin “profits virus” has become a pandemic the last five years, spreading way beyond our banking system, undermining the American and global economies.

Unfortunately, most investors are in denial, blind to the symptoms, refusing to listen, dismissing critics like Godin and Bogle.

10 symptoms of Wall Street’s metastasizing soul sickness

Shortly after the 2008 Wall Street bank credit meltdown we identified the symptoms of this mutation of capitalism, profits virus, and soul sickness. With the new SEC chairman appointment of a prosecutor this is a perfect time to update, reexamine what government missed exposing the past five years.

Take a moment to diagnose our bank culture through these 10 symptoms of moral pathology, focused on Goldman Sachs in 2009 because of its conflicts of interest with the Treasury secretary. Since then, however, that toxic culture has metastasized, spreading deep into our banking system, economy and democracy.

Look with fresh eyes and ask yourself if America’s “profits virus” obsession made us better place since 2008:

1. Narcissistic self-interest: with an extreme God complex

Narcissists are self-centered, power-driven, myopic. When I was at Morgan Stanley in the 1970s we ran an ad: “If God Wanted To Do a Financing, He Would Call Morgan Stanley.” Goldman’s boss Lloyd Blankfein not only paid himself $68 million in the hot 2007 market but also, after Wall Street’’s 2008 meltdown, bragged to the London Times he was a “blue-collar guy,” that banking had a “social purpose,” he was just a banker “doing God’s work.”

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