Democracy in the marketplace

Public dissatisfaction with the finance industry is giving birth to an online alternative… and the banks are furious!

By Barry Sadovsky

Follow the Money

Since the collapse of the Tulip trade in 17th Century Holland, the greatest calamities to hit global markets have both taken place within the space of a century. Two other related characteristics are that they both radiated from the world’s largest financial center – the USA, and they both were a result of institutional misconduct.

The Great Crash of 1929, though the result of a breakdown in commodities prices, was exacerbated to the point of widespread tragedy by the fact that countless working people, unknowledgeable in world events and removed from the actual markets, were convinced by unscrupulous brokers to invest their meagre savings in a market bubble. The Meltdown of 2008 was the result of untenable mortgages being willfully pandered between banks as securities, investment companies cheating their investors and a regulator who refused to regulate.

Little surprise, then, that as soon as the PC revolution reached maturity, one of the first sectors to be democratized and threatened has been that of financial markets investments.

An Industry Alternative

Today, retail investors (those who do not work for a larger organization) are increasingly regular people with personal savings, who in today’s low interest-rate climate find that they have no other place to park their cash. Any money deposited with a mutual fund or other savings instrument will show less profit than beats whatever miniscule inflation there is thanks to high administrative costs; and pension funds are collapsing left and right due to a higher life expectancy, more retirees than working individuals to prop these funds up, and – in too many cases – faulty investments of the funds by their directors (who, notwithstanding, seem to find sufficient funds for their inflated salaries).

The past decade has seen a host of online “brokers” taking advantage of the situation and offering the public platforms that are little better than the gaming sector from which they sprung. But as in any other industry in its inception, these are swiftly being overtaken by responsible and government regulated firms offering a legitimate channel for personal investments. Add to that the numerous self-policing sites that expose the less responsible players within days of their creation, and one understands why the “legitimate” investment industry is worried.

One recent case in point was an exposé in Israel of Binary Options companies – some that had been scamming their clients. The story was a legitimate foray into investigative journalism but one supported by a large hedge fund owner. As a result, its generality and lack of depth were highlighted the following week, when the Israeli Securities Authority (one so draconic that Israeli companies prefer to list abroad) authorized the country’s 7 largest forex companies to trade derivatives in Israel – metaphorically placing them in competition with the Israeli Stock Exchange’s secondary market.

Bankers Bank, Regulators Regulate, Investors Unite

Over the past 5 years, major banks – realizing that these companies have the clientele and platforms in place – have been purchasing major forex companies; Bitcoins “blockchain” ledger system is being adopted by major currency dealing entities (central banks, commercial companies, etc.); and crowdsourcing is quickly becoming the poor man’s version of an IPO.

But the clearest motivation to go legit is in the numbers: the gaming industry, from whence the amazing technology of online investing emerged, claims an annual turnover of 100 billion dollars – no small sum; but that number is incomparable to the 35 TRILLION dollar industry called ‘pension funds’. If you were creating an online brokerage, to whom would you prefer to cater?

Clearly, the financial world is at a crossroads and the world’s economy needs help from whichever direction that help may come. We have seen the democratizing of print – once limited to priests and noblemen – leading to global literacy, and the democratization of the media monopoly engendering social media and a more transparent world order. Perhaps the day will arrive when democratization of the financial marketplace will render market manipulation and financial corruption untenable.

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