Safety & Sanity - Sacrifices at the Alter of Capitalism

Inflammatory headings notwithstanding...

More and more, I am of the belief that capitalism, though a system that has contributed immensely to the welfare of human beings (on average), is deeply flawed.  And the blemishes are unsightly enough, that society should think twice, thrice or however many times necessary, before we trust and hope that untethered free markets will be able to deliver us from the more unsavory aspects of human society that have plagued us since... forever (ie poverty, inequality, injustice, starvation, war, etc etc)...

Let me give you a perfect example of how twisted capitalism can be.  In our stock market, there are instruments (securities) that are created in order to facilitate the buying & selling of shares of our country's various economic enterprises (read, companies).  In addition, there are other economic instruments created to bring liquidity to various markets, for example the commodities market.  The key is this...

Whenever there is a need for a product, the market will create it... if we want more stock, prices will go up, companies will sell stock and prices will reach equilibrium... if we want more bonds, prices will go up, companies will sell bonds and prices will reach equilibrium... if we wanted more interest-rate-swaps... coffee-futures... etc etc

However, there is a major flaw in that statement.  The market does not create based on need.  The market creates based upon WANT.

Let me give you an example.  I will not name the specific security, but recently I found a prospectus for a newly created product, which now trades on the stock market.  Let me offer you some carefully selected excerpts from the prospectus of this product (a prospectus should tell you the characteristics and risks of a financial product... kinda like a nutrition label on food products)...

In almost any potential scenario the Closing Indicative Value (as defined below) of (product) is likely to be close to zero after 20 years...

The long term expected value of (produt) is zero.  If you hold your (product) as a long term investment, it is likely that you will lose all or a substantial portion of your investment.

I didn't make that up.  This product was created.  It is structured in such a way, that the 'long term expected value' is ZERO.  And people buy it.  If this instrument was sold in grocery stores, it would have a surgeon general's warning.  This is an instrument that nobody should need.  It kills people('s wealth).  But, it was created because there was a demand for such a product.  People wanted another instrument to make bets with, even if it's a terrible one.  Thank you capitalism.

(To be fair, it's not capitalism that's messed up... it's the participants.  Then again, to be fair, the same could be said for communism or any other -ism)