7 Financial Myths Affecting Wall Street and the Economy

Michael McTague  |

This article launches a new series concerned with exposing myths about business. Many of us find ourselves bombarded by half truths from the financial media and colleagues. For example, you have lunch with a client, or you watch the news and there they are – opinions, criticisms, gripes about business. A parking garage attendant, bartender or teaching assistant hits us with one of these business myths. For example, “Good morning, Mr. Schmidlapp. You work on Wall Street. Are you one of the people who ruined the economy?”

A major motivation for this new series is that these rallying cries about the evils of Wall Street, the greed of bankers, the Madoff-like quality of anyone in an expensive suit are delivered with such conviction, but rely on false assumptions and limited evidence. Haven’t you ever said to yourself, “I wish someone would do something about this?” Well, this new series is the answer to your request.

7 Wall Street Myths

Here are seven prime myths about business gleaned from unpleasant interaction with a host of people. Each piece of fiction needs analysis:

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  • Inflation caused the recession (Yes, widely bandied about on the Internet. Since inflation has been so low for years, one may wonder how such an idea gains traction.)
  • The dollar is finished; it will be replaced as the major reserve currency. (The dollar is certainly declining but there are no alternatives. A year ago the euro was in big trouble. Greece and European debt still make headlines. In recent months, some reserve holders have shifted some funds to euros. But even reserve holders are entitled to hedge.)
  • Banks refuse to lend money. (Even though the primary, traditional source of bank income is loans, this tenet is held by a majority of Americans. Could it be that would-be borrowers fear debt in this business climate?)
  • China’s economy will soon overtake the US. It’s just a matter of time. We’re doomed to second-rate status. (The Wall Street Journal ran a story on June 14, “Wave of Unrest Rocks China.” Even this burst of reality will not convince the doomsayers.)
  • Buy gold; buy it now, in large quantities. After all, the market is declining and gold is the only safe haven. (A great idea – until the market rises and people dump gold as they have been doing early in 2011. And then there is the question of who will buy gold when smart investors move back into stocks and bonds – jewelers?)
  • Oil is doomed. Everything is going green. Solar and windmills are the way of the future. (The US demand for oil is largely unchanged through the recession. Remember ethanol, yesterday’s sure-fire solution to our energy needs? That’s ethanol of the numerous bankruptcies and plant closings.)
  • The Government controls the economy; they need to do something to fix it. (Not only does the US economy run on the basis of supply and demand, but there are virtually no tariffs and only two nations do not qualify as what used to be called “most favored nation status.” Its current name is “permanent normal trade relations.” Those countries are Cuba and North Korea, which are not major trading partners. So, how much of the economy does the government control?”)

As with all lists, this one is not complete. You may have favorites. If so, please let us know; we welcome suggestions. In future installments, these seven and others will be subjected to the special light of facts and analysis that exposes the truth.

If we are successful in this endeavor, all of us can breathe a sigh of relief. We may internalize solid responses. You’ll feel a lot better reeling off a few facts backed up with cogent analysis than blurting out a few f-bombs, which, if you are a Wall Street executive, might put you on page 4 of The New York Post.


Michael McTague, Ph.D. is Senior Vice President at Able Global Partners, a financial consulting firm in New York City.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.


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