“Calling Wall Street to Account”

Ethical Markets Reforming Global Finance, Advisors' Forum

by Alan F Kay, PhD, copyright 2012

In 1967, I started “AutEx” with a name that reflected the function of my Company.  Automation would go way beyond the functions of the financial industry wherein an Exchange was a place where floor traders went face-to-face to complete a transaction.

Brokers, dealers, and other financial institutions subscribing to AutEx’s growing network operated with high-speed telephone transmission lines, paid monthly fees to buy and sell each others financial instruments (stocks, bonds, etc.) in the comfort and convenience of working in their own offices throughout the US and elsewhere.  My company, AutEx (1) provided a neutral trading platform before there was an internet, (2) was in the black every month, (3) expanded its customer base in the financial industry, and (4) had no competitors.  Customers were welcomed to offer helpful suggestions for the various services provided.  I listened gratefully, enjoyed discussions, and explained everything customers wanted to know about how AutEx worked.  Mike Bloomberg of Salomon Brothers asked for more detail on how AutEx worked than anyone else.  With enormous financial backing wisely used, Mike Bloomberg in time became a multi-billionaire.  He successfully developed many financial services without competing against any AutEx services.

I sold AutEx after 15 years of running the company, which later became part of Thomson-Reuters.  After 1982, I had no further commitments to assist its new owners.  Citibank had been a moderate investor at the start of AutEx and later persuaded me to put together a new company called “On Line Markets – OLM” to help Citibank find large profitable acquisitions.  In the two or three years with Citibank, OLM evaluated over a hundred potential acquisitions.  Only those companies that Citibank judged were strong with annual revenue of over $100 million were seriously considered by Citibank for acquisition. At that time I had no idea that large banks, by the rules of the Federal Reserve System since 1913 created most of the money in circulation as loans.  This form of private money-creation provides enormous profits for banks. Why did Citibank seek such multiple acquisitions of large companies?  Citibank saw this strategy as a route to faster growth and did grow by trillions.  Later, it received a multi-billion dollar bailout in the TARP while it unofficially still remained too big to fail!  I had numerous discussions with the top people at Citibank who never verbalized but assumed that they and their shareholders expected even more profits that received such large money amounts that it needed to acquire companies that produced annually over $100 million revenue to give it the fast growth it sought.

Citibank grew by trillions then received a multi-billion dollar bailout in the TARP and is still unofficially too big to fail!    I had numerous discussions with the top people at Citibank who never mentioned or hinted that they expected ever more enormous profits.  I did see one important thing while working for Citibank.  All of its customers, with very few exceptions, got no benefits or opportunities for sharing revenue.  This is the model that Wall Street still favors today: not only are customers often short-changed, so too are investors and shareholders.  The Dodd-Frank reforms of 2010 pushed the details onto the regulators – now besieged by thousands of well-paid Wall Street lobbyists.

In 1996, I was invited by the United Nations to make a presentation focusing on what I had done personally to make the world a better place.  I dug into my records and found that in the intervening 31 years (‘65-’96)  I had grossed $12 million while dropping a total of $4 million in taxes, and distributing another $4 million to pro-bono and non-profit causes.  I was thereby left with a net worth of $4 million at that time.  Since then, I and my partner, Hazel Henderson have jointly financed the social enterprise, Ethical Markets Media (USA and Brazil) with Hazel still serving as its pro-bono CEO. (See a case study in Earth Capitalism, foreword by Bill Gates, 2009)

Ethical Markets Medias initiatives in 2010 produced  Statements on TRANSFORMING FINANCE now been signed by over 100 world experts.   We challenge additional signers at www.transforming finance.net.  In the Original Statement, we affirm that finance is part of the global commons.  We challenge the financial industry of miss-using public infrastructure provided by taxpayers, i.e., the internet, communications satellites, global fiber optics, etc. Since then, we and our partner company, Biomimicry 3.8, have produced a guide with standards, criteria and operating  practices for a new asset class in Ethical Biomimicry Finance™. Our latest TV series on  TRANSFORMING FINANCE features 20 financial experts, asset managers discussing high-frequency trading, collusion among electronic trading platforms, derivatives and regulatory issues to address the need for fundamental reform of global markets.

I now somewhat regret AutEx as the first to bring computers to Wall Street creating the first trading platform.  This is part of the global electronic platform which the financial industry now miss-uses; cheating customers and investors, speculating on commodities, causing hunger and hardship to millions and indulging in front-running their customers through high-frequency trading.  A part of me is saddened that my introducing computerized trading on AutEx – all those years ago – has led to this monstrous misuse of markets and technology.  Further financial meltdowns will surely occur if real reforms are not made.  Since these markets are now interlinked in today’s global casino, regulations must now start at the G20 and be global.

Ethical Markets CEO, my co-author Hazel Henderson, and I have proposed financial transactions taxes since 1995.  (See for example, the “Foreign Exchange Transaction Reporting System (FXTRS)” Futures, Elsevier Science, UK, 1996; Curbing Financial Trading” CSR Wire 2010.  We co-founded the Global Commission to Fund the UN, and published its report “The UN: Policy and Finance Alternatives”, Elsevier, UK, 1995.  Hazel’s most recent articles are published by CSR Wire, InterPress Service, the Network for Sustainable Financial Markets and ICAEW.

Financial transaction taxes are supported by many heads of state, financial analysts, and NGOs (www.EthicalMarkets.com). A less than 1% financial transaction that will not harm investors, is now the agenda of the G-20 and many countries and has become law in some. This can discourage speculators and begin to curb HFT (High Frequency Trading) and other misuse of financial and commercial technologies.  Most recent articles are now supported by many heads of state, financial analysts, and NGOs  (www.EthicalMarkets.com). Best of all, it is the easiest tax to collect online and the best way for strapped governments who bail out the big banks to restore some funds to their suffering taxpayers.

ALAN F. KAY, PhD, mathematics, Harvard (1951); director-emeritus World Security Institute; former board member of Green Seal; secretary-treasurer of Ethical Markets Media (USA and Brazil)