Wall Street conspiracy theories dissected, defined

By Gary Weiss
The Big Money
Sunday, November 22, 2009

Once there was a simpler time, when pretty much everything that happened in the financial world had a straightforward explanation.

Take the crash of Oct. 19, 1987. In one day, the stock market lost more than one-fifth of its value. Back then there was considerable speculation about what caused the market to decline as much and as fast as it did. Something that most people never heard of (before or since) called "program trading" was widely blamed, and curbs were put in place. But very soon the nation moved on, the market rebounded, and the issue faded. Discussion of the causes of the crash was confined to presidential commissions and academics.

Today, of course, the market crash of 1987 seems like a happy interlude in comparison with the recent nightmare. With greater fear -- reminiscent almost of the Red Scare of the 1950s -- we're seeing a rash of conspiracy theories.

It's not surprising, really. In his 1963 essay "The Paranoid Style in American Politicians," Richard Hofstadter marveled at the extent to which paranoia had become an accepted part of the political dialogue. So it seems natural that paranoia has crept into the dialogue about the financial system as well.

As in all fields of conspiracy theorizing, there are two broad species of Wall Street conspiracy theories: the alternate history and the hidden factors.

Time -- sometimes a long time -- either demolishes or substantiates conspiracy theories.

So here's a field guide to prevalent Wall Street conspiracy theories, with each one graded on scope, durability, crowd appeal and plausibility, and each graded on a sliding scale from 1 to 5, with 1 being "fugetaboutit" and 5 being "damn right."

-- Wall Street cheats consumers at the gas pumps

Wall Street speculation that drives up prices rarely gets the public too exercised -- if the prices belong to stocks they've bought. But speculation that drives up the price of gasoline, heating oil, broiler chickens and other commodities has consumers ready to march down from Trinity Church carrying pitchforks. So it was with the oil price spike of 2008. Surely there was a hidden hand there, no? After all, how was it that oil prices suddenly climbed? Had to be nasty people on Wall Street doing that. Well, guess what? That's exactly what happened. The Commodity Futures Trading Commission found that speculators did drive up the price of oil. So here's a clear-cut example of how traders sitting behind terminals actually messed with ordinary people on Main Street. That wasn't their intent, but that's what they did.

Category: Hidden factors

Scope: 5

Durability: 3


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