Reason #54: The Wall Street Propaganda Mill - Fleecing us with Lies

Just like the federal government uses cooked statistics to keep us spending, the hucksters on Wall Street are always working overtime to keep the suckers’ money flowing in. Big investment firms run massive propaganda mills that crank out overly optimistic news and sell the common investor financial snake oil. Do our leaders in Washington require them to substantiate their claims? Don’t bet on it. In fact, they stand side by side with these silver-tongued snakes, hissing the same song.

During the housing boom earlier this decade, big financial players like Goldman Sachs and Merrill Lynch made fortunes packaging subprime mortgages into giant bond issues. In just three years, more than a trillion dollars in these risky loans were wrapped up in a pretty bow and sold to investors all over the world. The most shocking part of the scam was how rating agencies such as Fitch or Standard & Poor’s gave the bonds AAA scores-the highest rating you can get.

In other words, bundles of loans given to the borrowers with the riskiest credit were marketed on Wall Street as the safest investments. The Federal Reserve and the Securities and Exchange Commission (SEC), government agencies whose job it is to regulate Wall Street, just stood by and let this happen.

After the crash-and-burn of the housing boom, the same Wall Street hucksters did everything they could to convince the public that the rest of the market was sound. One of their favorite figures to cite was the Price-to-Earnings numbers, or P/E, which calculates the relationship between a company’s revenues and its stock price. The propagandists claimed that the average P/E in the market was in line with historical standards. Which was true only if you were looking at short-term numbers. In fact, before the big meltdown of October 2008, the long-term P/E average in the markets had only been higher twice in the last 100 years-during the dotcom bubble in the 1990s and right before the big crash in 1929.

For the bankers and traders, of course, it was much more convenient to overlook that fact. But what about the people in Washington who were supposed to look out for the rest of us? Were they just asleep on watch? We wish. They seem to think it’s their job to back the bankers up. U.S. Right up until he demanded a $700 billion blank check to bail out Wall Street, Treasury Secretary Henry Paulson regularly issued optimistic statements about the state of the financial markets. But before he came into government, cheery old Paulson was knee deep in the subprime bond scam as chairman of Goldman Sachs. How can we trust a word this man says?

NEXT: Reason #55: Home Inequity - Wall Street’s Subprime Madness