Wall Street WARZONE

Yes, You Are in “The Warzone:” Your Money’s in Danger, so are Your Freedoms

by Paul B Farrell, JD, PhD
| | 5/10/2010

Yes, you are in “The Warzone.” Learn how Wall Street and the “Happy Conspiracy” control the American mind, your money and global markets in “The Warzone.” Learn everything you need to know—and everything they don’t want you to know—about the secret predatory darkside of behavioral finance, neuroeconomics, behavioral economics, investment psychology and the new “science of irrationality.” Learn how these new behavioral sciences are being used as “weapons of mass manipulation” to control, not just how you invest your money, but how this “Happy Conspiracy”—the new Orwellian Big Brother—is fundamentally altering the way you ”see” the economy, markets, government, business and the world in general, luring you into their “Warzone” to play by their rules in a game that’s fixed. Know their game and you can win.

During the past forty years the behavioral sciences have been rapidly chipping away at Wall Street’s outdated “rational man” theory of investing—which, for more than two centuries, had been the basis of all market and investment decision-making since formation of the New York Stock Exchange in 1792. Wall Street’s theory tells us that investors are “logical, reasonable and rational.” But today, the “rational man” theory no longer works. Not on Wall Street. Nor on Main Street. This historic flip-flop is the result of research in the related fields of behavioral finance and neuroeconomics, the psychology of investing and the new “science of irrationality. ”

Listen very closely, there is no such thing as a “rational investor.” Never was. It was an illusion … it is an illusion … it always will be an illusion … it was concocked by Wall Street. We are all “irrational investors”—you, me and every one of the 95 million investors in America. And yet today—in spite of overwhelming evidence to the contrary—most investors still live in denial, preferring the illusion over reality. Why? Very simple: Because $20 trillion in investor assets and hundreds of billions of Wall Street’s annual profits depend on keeping that misleading illusion alive in the minds of the American public! And that’s why Wall Street is engaged in a secret war to manipulate, dominate and control the mind of the investor.

Psychologist wins Nobel Economics Prize—and the paradigm shifts

The spell was almost broken recently … almost. For the past several decades, these behavioral sciences have been the domain of psychologists using MRI technology and colorful brain scans to research the decision-making behavior of individual investors, which slowly discredited Wall Street’s outdated theory of the “rational investor.” Then, that paradigm “shifted.”

The work of these behavioral psychologists peaked in 2002 with the first-ever award of the Nobel Prize in Economic Sciences to a psychologist, Princeton professor Daniel Kahneman. That award also proved that Wall Street had been misleading Main Street investors for over two centuries — the “rational investor” theory (“homo economicus” as academics are fond of calling this investor) was a totally misleading illusion concocted by Wall Street to manipulate a gullible public. As a result, thanks to Kahneman and the work of his colleagues over these past several decades, America’s 95 million investors are now clearly seen as “irrational investors.” However, that new reality turned out to be a dangerous threat to Wall Street pocketbook—one they’ve ingeniously turned from a threat into an fabulous opportunity! 

New behavioral finance leaders—quants replace shrinks

With hundreds of billions of revenues threatened, Wall Street counterattack on many fronts, with fierce determination to recapture control of the financial markets and regain total control of the investor’s mind. Net result, Wall Street’s secret counter-attack has essentially undermined all prior advances that behavioral finance psychologists made in the recent decades helping individual Main Street investors. Today, Wall Street is using all this science and new body of knowledge against the individual investor, not to help us.

With the speed and cunning of a B-1 Stealth Bomber dispatched as part of a Pentagon Strategic War Planning mission, Wall Street’s massive counter-attack is taking place outside the public eye—in the shadows of academic research institutions, behavioral finance think-tanks and on the “front lines” by a new generation of portfolio managers. In short, within five short years after the shift brought by Kahneman’s Nobel Prize, Wall Street’s counter-attack is rapidly bringing about another paradigm shift in the behavioral finance world, effectively reversing and absorbing all the work done by Kahneman and the psychologists for Main Street investors, because today …

Psychologists no longer rule behavioral finance. Psychologists had been helping America’s 95 million individual investors understand and minimize the self-sabotaging effects of their irrational behavior. That’s over, folks, now …

Quant-mathematicians have replaced psychologists. Today the quants rule, working under lucrative, exclusive and secret contracts with Wall Street’s power-players, banks, brokers, portfolio managers and institutional traders. 

And with this new emphasis on mathematics, quantitative analysis, statistics and computer technology, the quants have engineered a massive take-over as the new bosses of the behavioral finance profession armed with esoteric high-tech weapons cryptically known as “innovative financial engineering.” 

Stealth weapons “flying under radar” of Main Street investors

Today, instead of helping individuals “Beat The Street,” this new breed of quantitative mathematicians, or “quants,” are now helping Wall Street beat Main Street’s 95 million individual investors on every way possible. Quants are on the payrolls of Wall Street and its allies playing in the mysterious worlds of hedging, arbitrage, private equity, alternative investments, derivatives and many other ways, helping Wall Street manipulate, control and dominate financial markets and individual investors. Unfortunately, this new world is a total mystery to the vast majority of Main Street investors for three very simple and crucial reasons:

One. Quants’ Esoteric Languages.
Few investors have little interest in, let alone understand, the cryptic communications of quants: higher mathematics, algorithms, statistics, heuristics, economic modeling, and computer programming.
Two. Proprietary Trade Secrets.
The behavioral finance and the neuroscience arena is also a mystery to the average investor because the quant business model operates with super-secrecy, hidden not just from Main Street but also to protect proprietary technologies that give insiders an edge competing in the “Warzone” against other quants.
Three. Avoid Government Regulation.
Quants are the elite brains behind the new $670 trillion global derivatives market, a “shadow banking system” that has evolved rapidly in recent years, outside the control of traditional securities and banking regulators in the US and globally, with minimum restrictions and reserve requirements. 

Rapidly Growing Power over Mind, Money & Markets

 This shift is having enormous, destructive consequences, far more insidious that the subprime-credit contagion. How? Until very recently, the public actually believed that the goal of neuroeconomics and behavioral finance was educating, informing, assisting and helping Main Street investors improve their decision-making skills, by minimizing their irrational behavior. No more! Today it’s the exact opposite—and yet, Wall Street, its allies in the Happy Conspiracy and their neuroscientific mercenaries are intensifying their war, doing everything possible to insure that Main Street investors, and American citizens in general, continue to be uninformed, naïve and irrational!

And unfortunately, the recent flood of pop-psychology books of behavior and money, including Nudge and Predictably Irrational, merely give an illusion of safety while making matters worse. Why? Because Wall Street’s new strategy is a massive cultural power shift in the ‘Warzone.’ Yes, they created the recent credit meltdown, but they’re coming back stronger. The new generation of behavioral finance quants is arming Wall Street power-players with more and more sophisticated weaponry that’s helping Wall Street take maximum advantage of America’s “predictably irrational” financial markets, which are populated by millions of “predictably irrational” investors.

Happy Conspiracy “needs” clueless Main Street investors

 In other words—and this is at the core of understanding this totally new kind of psychological war—the last thing Happy Conspiracy wants is 95 million educated, informed and rational Main Street investors. Why? Because if investors are truly educated, informed and rational, it would seriously undermine Wall Street’s ability to manipulate the minds and money of Main Street investors using the new neuroeconomic and behavioral finance sciences and technologies. Today we are watching Wall Street’s version of the old “mushroom strategy … keep ’em in the dark and throw manure on ‘em!”

Secrecy demands of The Happy Conspiracy and the Quants merging

Actually this game is not new for Wall Street. They have always known that the “rational investor” was only a highly profitable marketing illusion cleverly used to mislead and control the “irrational investor’s” mind—but it has always been one of their clever little secrets, so investors never realized how much they were being scammed. For over two centuries Wall Street has been an elite private club, extremely secretive and protective of how they ran their “casino,” the stock markets. They disclosed information to their own investors only when forced, something that they’d fight at every turn and at all costs in the courts and in Washington. And even then, as time passes and the demand for reform and transparency slipped off the front page news, Wall Street would invariably return to ask regulatory agencies to relax enforcement, as we’re now seeing with efforts to water-down the Sarbanes-Oxley Law created to plug loopholes after the earlier Enron-related scandals.

Another example, a few years ago we conducted a survey exposing twenty-five areas of non-disclosure protections which provided mutual funds with an extraordinary level of secrecy—all sanctioned by a Congress that many now say is “owned by the banks”—such as not having to disclose all fees and expenses, nor brokerage costs, nor portfolio assets, nor the assets and salaries of managers, etc. Little has changed, while the “Happy Conspiracy” has greatly expanded its protections, reach and power.

Today, for example, Wall Street has a vast, secret network of “co-conspirators” who directly and indirectly profit from the secrecy surrounding these non-disclosure protections—including brokers, banks, lenders, analysts, retirement planners, advertisers, cable, media and even the press, as well as politicians, insurers, lobbyists, and special interest advocates. As a result, this widespread network of special interests quietly conspires with Wall Street in fighting from behind a wall of secrecy to support Wall Street in maintaining the advantages they all enjoy over the Main Street masses, hiding as much as possible of their profit-making benefits from public scrutiny.

War! A powerful metaphor throughout America’s history!

In recent years, you and me and the rest of America have all heard about “war” metaphors ad nauseum. Hardly a day goes by without the press and media focusing us on the “Iraq War” and the “War on Terror.” In fact, some extremists often escalate the rhetoric to “World War III” or a “War of Civilizations.” And at times we’ve all heard about a “War on Drugs,” a “War on Poverty,” the “War Against the Middle Class,” a “War on the Press,” a “War on Blogs,’ and for a while a couple years ago, even a “War on Christmas.” Why this obsession with “war” metaphors? It’s in our blood. Like it or not, the America dream was built on wars. War is an inescapable part of America’s history—whether you’re for or against war, it’s in our genes, our psyche, our very soul.

So “war” is a popular metaphor often used to dramatize just about every cultural conflict that comes down the road. And as you’ll see, it resonates here too. This book is all about one of the biggest wars of our day, an inner psychological war—”The Happy Conspiracy’s War to Control the Investor’s Mind”—a war intensely waged against America’s 95 million Main Street investors on 25 battlegrounds, a war that is also a rapidly-growing threat to America’s free market economy, our democracy, our culture, our future, to our way of life.

“Happy Conspiracy” in “The Warzone:” perfect metaphor for new world order

Ultimately, this site is a “rules-of-engagement” manual for Main Street investors, one that’s all about knowing your enemy and their vast arsenal of secret weapons, players and strategies. Understanding the game they’re playing—where they must lure you into playing on their battlefield—is the first step in creating your own winning strategy. You must know your enemy, because nothing will stop their relentless attacks against you. In fact, the meltdown and recession merely embolden them to fight harder to control America’s mind, your money, global markets.

Remember, you are playing a deadly game against a ruthless enemy that’s fighting to win at all costs—the “Happy Conspiracy” is a small, powerful band of insurgents trying to take over the 300 million-strong American democracy. You cannot win if you play by their rules. The odds are overwhelming. To win you must change the rules-of-the-game and play by new rules—your rules—turning the tables, using an asymmetrical strategy employed with the same cunning spirit that throughout history has kept Americans coming out on top against impossible odds. At all times pemember, the “Happy Conspiracy” is engaged in psycholgical operations war against you and 300 million other Americans, a small but powerful insurgency attacking an entire democracyand you are part of the counterinsurgency. Know your enemy, take charge, develop your strategy, you will win!

4 Responses to Yes, You Are in “The Warzone:” Your Money’s in Danger, so are Your Freedoms
  • Sugar01 says:

    Paul, big fan of the site but please clarify. On one hand you talk about the conspiracy and guile of Wall Street but on the other you speak about the virtue of investing in index funds. Why not just buy treasuries and cd’s and call it a day?

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    • Paul Farrell says:

      Bruce Springsteen once said: You’ve got to be able to hold a lot of contradictory ideas in your mind without going nuts. I feel like to do my job right, when I walk out onstage I’ve got to feel like it’s the most important thing in the world. Also I’ve got to feel like, well, it’s only rock and roll. Somehow you’ve got to believe both of those things.”
      You raise the great paradox, one I’m trying to resolve: The index portfolios became a book in 2004. They’re now updated daily at “MarketWatch.com/lazyportfolio.” But since the subprime meltdown, burgeoning national debt, and the Wall Street-Happy Conspiracy takeover of our government, I fear another, bigger meltdown and depression in the near future. See my archive at: http://www.marketwatch.com/search?q=paul+b+farrell&m=Column&rpp=100&mp=Paul+B.+Farrell&bd=false&rs=true

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  • Sugar01 says:

    Glad to see you quote Springsteen, that is an interesting thought, living in a world of contradictions. Was it Tom Petty who said we are part truth and part fiction?

    I like the concept of the lazy portfolio. The markets are controlled by so many forces that are out of our control, it seems fruitless. Is it 80% of all volume on the NYSE is controlled by trading programs?

    Just a thought though, you should benchmark these portfolios versus 60% S&P500/40% Barclays Agg.

    Keep up the good fight. BTW did you watch Andrew Ross Sorkin and Michael Moore on Bill Maher. Seems like you and Michael Moore would make a great team!

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  • Paul Farrell says:

    Thanks! Earlier Michael Moore was highlighted in my MW column, “Death of ‘Soul of Capitalism’: Bogle, Faber, Moore,” see last Oct’09. PBF

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