The next time you “read” about a textile mill shuttering the plant and moving the jobs offshore it may not be a textile mill. Indeed, it may not be a manufacturing or production facility of any kind. The next American icon to close shop and move overseas may well be the New York Stock Exchange.
Today, if news reports can be credited, the Deutsche Bourse is finalizing the agreements to acquire the New York Stock Exchange. As word of this acquisition spread over the past week or so, it has been amusing, and frightening, to watch and hear the talking heads on CNBC and Bloomberg try to convince themselves that the NYSE is somehow different from all other domestic industries our country has given away over the past sixty to seventy years.
Somehow, the talking heads tell us, there is something special about what the NYSE does that will grant it immunity from dissolution and removal. Of course, all these arguments are the same arguments small town mayors made to themselves and their fellow citizens while the nation calmly continued to whistle by the graveyard as the local, regional, state and, finally, the national economy cratered.
If there is a difference between the movement of the textile industry offshore and the eventual consolidation of the new, combined exchanges in Berlin, or Frankfurt or Bremen or Cologne or wherever the Germans decide to put it, it is that the forces demanding consolidation of the exchanges is so much more powerful and compelling than the auguries of the rape of the textile industry ever were.
Instead of one huge, centralized exchange, advances in telecommunications and data exchange technologies may mean the combined exchange may not require a trading floor anywhere. It could be the entire system could reside on a great central computer center or a number of smaller, geographically dispersed processing “exchanges” all around the world, handling regional trades and backing one another up. One thing for sure, as the NASDAQ exchange has proved, there is no structural requirement for a central trading floor such as the NYSE model.
If the structural architectures of the exchanges are due for a major modification, why would anyone think the Germans would feel compelled, or even interested, in centering that new architecture in New York? Money moves at the speed of light now days, the physical point at which money legally changes hands, where commissions are won and lost, where management fees are booked, etc. can just as easily be in Germany as New York. It could also as easily be dispersed all around the globe in a number of mini money centers without losing any operational efficiency. Indeed, with branches all around the world, many of the big international exchanges already have a presence in Asian, Middle Eastern, African, and Latin American cities as well as European and North American cities. Spreading the “wealth” makes both operational and political sense. There is no reason to suspect this existing trend will not be accelerated as a result of the merger of the two big exchanges as well as the smaller exchanges in London and Toronto previously announced.
What is a dead certainty is that New York will not be the dominant player in international finance twenty years from now as it is today and has been for more than a century. This diminution of importance will mean a number of things for the rest of New York City and State and the United States, none of them very good. First, the obscene excess wealth thrown off by the financial center operations in New York have long fueled the theater and art markets in that city. Without that obscene wealth these markets will find it that much harder to sustain the work of the creative types who pour into New York everyday, ready to show the world how it is done. Without the direct and indirect funding of these creative efforts in the performing and fine arts, New York will begin to shrink as a world center for creativity.
So much depends directly upon these creative industries. The presence of television and movie production would long ago have abandoned the hostile natural and tax and labor cost environment of New York for elsewhere. The critical mass of talent, access to capital and local markets for the product of creative arts will soon fall apart and the city will become like any other city. It will have its own, home grown creative types about but it will no longer be the international Mecca for those young people who possess a creative spark in their souls and a spirit of adventure that comprise the relentless Nile River flood of talent moving in and telling everybody to move over and replenishing the creative soil of the City.
The combined annual business done by the two exchanges is somewhere around seventeen trillion dollars worth of deals. Most of this, I am told, is in the derivative markets, including credit default swaps. This combine volume will create a stock exchange far larger than cumulative volume of the next three exchanges.
While both NYSE and Deutsche Bourse currently do business in a variety of currencies, when trades are finalized in New York, all currencies have to be converted to dollars. In Germany the final trades are executed in currency converted to Euros. If the final transaction point for the two consolidated markets is in Germany, whether actual trade processing is centralized or dispersed, the final transaction will be converted into Euros and all, world wide prices will listed in Euros. This may mean far more than mere pride. Such an establishment of the Euro as the world exchange standard currency could mean the establishment of the Euro as the primary world reserve currency instead of the dollar.
Speaking of the derivative business, this is the general market where all the credit default swaps and hedge fund operations take place. It is the single activity given most of the credit for the global, financial meltdown in 2007 and 2008. These markets remain largely unregulated and there is nothing in particular to stop the financial geniuses ruling the world from doing it all again, any time they choose to do so.
What makes this “merger,” potentially, rich in irony and karma is the general notion that the primary reason the US Federal Reserve is so opposed to an audit of the obligations it assumed in the wake of the financial meltdown is such an audit would discover that the Fed has agreed to guarantee a huge portion of the obligations left over from the derivative markets pre meltdown, some seventy-five trillion dollars. Commonly labeled legacy assets, these left over, unfunded and, largely, worthless obligations would have sunk most of the world’s financial institutions if those depending upon them or those guaranteeing them ever had to pay up or cash in. To avoid this collapse it is widely assumed but not discussed that the Fed simply paid every body off, removing any risk from the private sector and saddling the public sector with it. (If this is so it amounts to the perfect crime. No human being can even conceive of a heist so large as this making a criminal reckoning impossible. If they stole a few hundred billion, yeah, a jury could be impaneled that could get its collective brain around that. Seventy-five trillion, this is too big a number to comprehend. A criminal cannot be convicted of a crime no one can conceive.)
If an international bail out of all the banks and all the hedge funds was part of the Bernanke scheme, then the Fed is protecting financial institutions all around the world, not just those headquartered in the United States. By rendering these debt swaps and other junk obligations real, the Fed has indirectly kept the German banks, as well as those in the Middle East, China, Asia and everywhere else solvent. In doing that, the Fed has allowed the Deutsche Bourse to remain solvent and the German and European economies strong. In doing that, the Fed has kept all the international competitors of what is left of out domestic production companies prosperous. Many, if not the vast majority of these competitor companies are listed and traded on the Deutsche Bourse allowing it to stock pile sufficient cash to buy the NYSE
All of the above outcomes are laudable, I suppose. However, if the Fed has, indeed, underwritten the big German banks, isolating them from the risk they assumed by taking on one or the other side of the debt swaps, the Fed has financed the destruction of New York as the financial capital of the world.
No one should be surprised if this scenario turns out to be accurate. It is the logical extension of the long standing policy of our federal government to adhere to the dogma of free trade, accepting any loss in jobs, production capacity, national wealth, destruction of the middle class, accepting any and all of this and more in the service of the mass stupidity of the Chicago School of economics.
If there is anybody left in Washington, D. C. still possessing the capacity of free and rational thought and who has one or more descended testicles, they need to stop this merger. Stopping this would be the first step in the long road back to repealing the horrible export replacement policy we call free trade with a policy designed to create real wealth and foster fair and open international trade. Maybe, now that it is Wall Street’s time to have its ox gored while only the Germans and the NYSE stock holders are invited to the bar-be-que, export replacement policy can be seen for what it is, national suicide.