Wall Street and Fremont Street

I've been leery of Wall Street for most of my adult life. And my paranoia is finally paying off. I'm not happy about it. I just knew it would happen in my lifetime. How did I know?

I'm all for business growth -- responsible business growth. And I think any business can grow if it has enough customers and it treats its customers well enough. However, when total strangers -- who don't know the company, its policies, its practices, or even its employees -- are asked to invest in that same company, the investors are only interested in the bottom line. And that makes for bad business.

The newest little tidbit from Wall Street to be uncovered by the media and exposed to nonfinancial people like myself is a little scheme called "credit default swaps." Wall Street calls it an investment or insurance. I call it gambling, and so would anyone who works on Fremont Street (that's old Las Vegas for anyone who doesn't know).

Credit default swaps are when you bet that a payment won't be made. That's right. Even the finance guys describe it as betting. But there are a number of differences between casinos and the crapshoot on Wall Street. The first is that Vegas casinos are regulated and are fined heavily if they don't adhere to government-imposed restrictions. Credit default swaps (CDS) are not regulated in any way, shape or form. Think of CDS as the Lord of the Flies on Wall Street.

Secondly, Vegas won't let you place a bet it can't cover. Remember in the movies when the pit boss has to go the real boss to see if a table can take a bet? The casinos want to make sure they have the instant capital to pay off a bet if the house should lose. Not CDS. The sellers of these swaps are not required to maintain any kind of reserves should a default happen. Apparently, it's all Monopoly money to them.

Thirdly, only a fool would decide to bet his entire retirement savings on a table in Vegas. Looks like that same belief can be transferred to Wall Street. At least on Fremont Street, you know they are trying to take your money and never give it back. But you also know if you spend enough, you will receive some kind of comp, whether it's a free meal or upgrade to your room. Wall Street just waggles its finger and accuses you of not reading the fine print.

Perhaps the saddest part of the whole CDS debacle is that enough people knew there would be defaults aplenty and that's where the real money was. Who are these people? How did they know? And did they have a hand in the collapse of our financial infrastructure? I don't the answer to those questions. I'm not savvy enough to figure it out and not evil enough to understand it.

At least on Fremont Street there's entertainment. The Fremont Street Experience is a light show that's free! You can get a 99 cent shrimp cocktail at Binion's. The bargains abound. And even though you drop some money while you're there, you leave knowing you had a good time. Can you say that about the last time you opened your 401(k) statement?