Our Financial System = Artifice?

Sorry for the lack of updates--it's been a busy couple of days, and my normal attention to electoral politics has shifted to a fascination/bewilderment over the recent financial events. Being in New York City, it's impossible to not get swept up in the general confusion and yes, excitement, resulting from the havoc playing out in the markets. In just one day, the administration and the Fed go from free-market hardballers ("no, we will not bail out the Brothers of Lehman from their silly mess") to socialist nationalizers (to be honest, my favorite flavor of government). What I've been thinking about the most lately, however, is not the specifics of this financial crisis, but the fact that it matters so much.

Over the weekend and early this week, we were deluged with articles and stories of how government and Fed officials were meeting with executives from major Wall Street firms to figure out how to shore up the markets and investor confidence. Various plans were discussed--the Fed tried to get certain private banks (JPMorgan/Goldman) to buy Lehman, attempts were made to create a $75 billion (yes, billion!) private lifeline fund for financial firms that needed capital, etc. These companies essentially were being depended on by the federal government to implement financial and economic policies. In fact, financial companies (and the economists within them) may be making these policies to a great degree. Does this not shock anyone else besides me? Private-sector, for-profit financial services corporations are being depended upon by the highest authority in the land to solve crises that they themselves created.

Thought-experiment: if McDonald's (a major corporation with high revenue and 40 times the employees as Lehman Brothers) was having major financial trouble and was about to go bankrupt, can anyone imagine the federal government even discussing the possibility of bailing out the Big Mac factory? They may help the former employees with work training or some severance payments, but any type of financial assistance would be off the table. Of course, you argue, the financial sector is so different--if we let major players self-destruct, it would have disastrous consequences for our economy and our everyday lives! Correct, but why is this so?!

Haven't the financial firms created a system where they get to profit by spreading risk throughout all sectors of the economy? How can my simple pension plan be invested in complicated derivative instruments that almost no one but seven recent Ivy League grads understand? There is no doubt that the current financial system requires the government to intervene in order for everything to be okay--the problem is that much of this entire system is completely artificial! While I understand the necessity of a robust equity and bonds market that pools savings and allows for sophisticated investment, the financial system today is completely complicated and I would even argue, unnecessary. A quick figure for everyone: the "credit default swap" market is estimated to be $43 trillion, while the entire derivatives market is supposed to be in excess of $500 trillion! That is 10 times the collective GDP of the entire world!!! Are you kidding me? What is even going on?

To bring it back to politics for a second, is it a coincidence that leaders in the financial services industry are probably the most powerful individuals in the private sector? Throughout multinational corporations, government agencies and international organizations (see IMF), you will find the best and brightest from the worldwide pool of investment bankers, fund managers and private equity dudes (I don't know the term). The CEOs of Wal-Mart or Cisco have negligible political influence compared to CEOs of the Blackstone Group and Morgan Stanley. I'm not sure, it just seems something is going on. For conspiracy theorists, check out these shadowy New World Order organizations: the Bilderberg Group and the Trilateral Commission (founded by people like Rockefeller, Greenspan and Volcker).

Reverse of Great Seal of the United States [on dollar bills]: evidence of financial conspiracy?