How We Can Stop the Globalization That's Bleeding Us Dry

Shah Gilani

Earlier this week, I showed you how, after a generation of running amok, financialization of the U.S. economy is close to killing - forever - the once-mighty American middle class.

Well, these forces have "help."

Globalization, the long-armed henchman of financialization, is an insidious contributor to the widening income gap and wealth inequality in the United States.

It's essentially another nail in the coffin of the middle class.

Here's the thing: It's possible to stop both of these disasters before it really is too late.

Undoing their destructive effects will be hard, don't get me wrong. There's at least a generation's worth of damage and many powerful people who are profiting from the system being upheld just the way it is.

But, like I said, it can be done.

Here's what we need to do to arrest and reverse this crony capitalist-engineered nightmare...

The Trojan Horse in Our Government

Let me be clear - both American political parties bear the blame for this shameful situation.

It's a totally bipartisan crime.

Successive Democratic and Republican administrations were steadily spoon-fed cash and campaign contributions by crony capitalist compatriots commanding armies of law-writing lobbyists. Starting effectively in 1980, they deregulated America's banking and financial services industries, so bankers could securitize formerly low-yielding loans into the high-risk, high-profit, speculative tools of financialization.

The fruits of their efforts resulted in the banking and financial services share of corporate profits in America ballooning to more than 40% of all companies' profits by 2006.

While the leveraging of American borrowers and profiteering of the economy (evidenced by debt-fueled speculative profits outpacing economic growth) was a huge "win" for these people, their domestic profiteering was augmented by an even wider global campaign - under the guise of "free trade."

The series of so-called free trade pacts that resulted was effectively a globalized push to lower regulatory barriers and was engineered to expand American credit into overseas markets.

Crony capitalist cash and the "Great Credit Factory" - the U.S. Federal Reserve - successfully exported American capital, along with manufacturing and assembly jobs.

There were barely any crumbs left here in America; the historical engine of American prosperity - the fuel for a once-expanding and aspiring middle class - had been "globalized."

The ugly irony of free trade and cheap capital is that global competition has ultimately led to overcapacity and reduced profitability.

Bringing back jobs to the United States now would be even more expensive and eat into those corporate profits. All the while, global competition and overcapacity bring down labor costs and margins even in places like China.

So crony capitalists lit the fuse and gave the impetus, but on a functional, day-to-day level, the evisceration of the middle class, the widening income gap, and wealth inequality in the United States aren't the fault of free markets or globalization in its unadulterated form. The problem doesn't spring from the design of our money system, either.

Rather, the problems are caused by how all these systems have been leveraged through - you guessed it - financialization.

Again, on a functional level, fixing these problems is relatively straightforward. But the crony capitalists won't go down without a fight.

Four Simple Steps to Stop This Tragedy

Shah Gilani

About the Author

Browse Shah's articles |

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

… Read full bio