Saturday, March 19, 2011

Japan and Wall Street

A lot has happened in the past week, with the epicenter of events being in Japan. Japan, as everyone knows, has suffered a three-pronged disaster - earthquake, tsunami and a nuclear crisis.

Our beat is Wall Street and the financial markets, so the focus will be on that aspect of this terrible tragedy.

Wall Street's reaction to the events in Japan? It can best summed up in the words of CNBC's Larry Kudlow: "Be grateful the human toll is much more than the economic toll from Japan quake!"

To be fair to Mr. Kudlow, he most likely misspoke. But it does sum up the feelings of most on Wall Street to the events in Japan.

And unfortunately, it sums up the lack of morals and ethics on the part of most of the big players on the Street.

Japanese Yen

There was a great example of this the past week in the currency markets.

Anyone who knows anything about economics realizes that Japan will have to rebuild the part of the country devastated by these disasters.

In order to do that, Japanese institutions and companies will be forced to repatriate funds from overseas. In other words, the Japanese will have to covert overseas holdings into yen, which then can be spent in Japan to begin reconstruction.

So what did the Wall Street vultures do? They immediately bought as many yen as they could, driving the price sharply higher.

In effect, they were frontrunning the Japanese. They knew that the Japanese would be forced to buy the yen at much higher prices, bringing Wall Street a riproaring profit on their yen positions.

In fact, the yen reached such a point that Japanese exporters would no longer be competitive, adding another problem into a country that has had enough of them.

So the major economic powers, including the United States, were forced to intervene in the currency market. They sold a bumch of yen, forcing the price back down for now.

This, of course, cost billions of dollars. Once again, we see the US government shelling out money to make up for Wall Street greed.

Isn't it enough that the Federal Reserve is spending $4 billion a day to prop up the stock market?

And is it any wonder then that the stock market rallied the last two days of this past week? And why Wall Street is loathed in other parts of the globe?

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