Dear Occupy Wall Street: Are You Sure You're in the Right Place?

I get it – people are angry. Very, very angry. I’m angry too. And Wall Street sure makes a great scapegoat, hence the Occupy Wall Street protest. Wall Street is a symbol of the “greed and corruption” that took over America and caused this whole mess.

But let’s take a minute to examine the facts and see if we can’t find some better scapegoats:

In 1997 Andrew Cuomo, the Secretary of Housing and Urban Development under Bill Clinton, allowed Fannie Mae to reduce the standards by which they would secure loans. This helped create the entire subprime category. Was this a bad thing? Of course not – it allowed more people to leave the ghetto, move to the suburbs, and achieve the American Dream of owning a home. Who knew that “Dream” would turn into a nightmare in a mere decade. Cuomo is not Nostradamus. We can blame him of course, but he had good intentions despite the negative results.

We can blame the Federal Reserve of course. They lowered interest rates after the dot-com bust so much that there was no way for anybody to achieve safe, steady returns using conservative investments like bonds. Everyone — you, me, retirees — wanted higher returns for their 401(k) and pension plan. So we went to the banks and said, What can we do? And the banks said, Well, you’re the ones asking for higher yields, so here it is. And they bundled together all the newly made subprime mortgages into mortgage-backed securities (MBS) so that the average guy could finally get some yield since the Federal Reserve was blocking all other alternatives. So if you want to occupy the Federal Reserve, go to Washington, D.C. Of course, they had good intentions too. They wanted people to stop buying bonds and start buying stocks. And it worked! Until it didn’t.

And what about the banks who bundled together these mortgage-backed securities? I don’t know, you and I asked for those securities through our 401(k) plans. So they were just responding to demand, right?

Fine, so what about the hedge funds. Suddenly they saw these mortgage-backed securities yielding 10% and immediately bought them up. They were greedy! But weren’t they just trying to find safe returns for their investors? Either way, the hedge funds aren’t on Wall Street. Go occupy Greenwich, or Park Avenue — but not Wall Street.

But then investment banks like Lehman saw what the hedge funds were doing, and they started doing it too: scooping up as much yield as they could, risk be damned! Greed! Again though, this was a handful of CEOs, many of whom have been fired from their jobs. I’m not trying to apologize for them. But let’s make sure our anger is pointed in the right direction.

Which now brings me to the biggest culprits yet: the accountants! Right in the middle of all of this mess, the Financial Accounting Standards Board (FASB) changed GAAP accounting rules so that you could no longer mark a mortgage-backed security according to your own statistical analysis. You had to start marking it down as soon as there were the slightest defaults and the paper started trading at lower values (this is called mark-to-market). Which meant that hedge funds trading in these illiquid securities could make just a few trades involving a hundred thousand dollars or so, and suddenly trillions of dollars would be wiped out of the value of the banks. Hedge funds gleefully took advantage of this accounting rule change, and tons of bank equity was wiped out. Once FASB changed the rule back (April, 2009) the banks (and all stocks) went straight up.

But how about this: You’re to blame too. That’s right, you. Why? Because you’re not investing in America! You’re irrationally scared. Why have there been 25 months in a row of redemptions from mutual funds? Why are P/E ratios relative to yields at their lowest levels ever? The stock market right now is irrationally low. Bond yields are at 1% (give or take) and the S&P 500 is yielding 2.3%. That wide a spread has never happened before. So please, get your money out from under the mattress, and stop un-investing in America.

And finally, people are saying the problem in the euro zone is a “repeat” of Lehman. On CNBC this week, I had to explain that Greece is a country, and that Lehman Brothers was a bank. You can’t liquidate a country, not very easily at least. The euro zone has problems but let’s put them in perspective:

In 1981-2 a huge portion of South America defaulted. Our 8 largest banks were 263% exposed to South America. What happened? A big bailout. Then the biggest stock market boom in history that lasted almost 20 years. Today, our 8 largest banks are about 8% exposed to the PIIGS (Portugal, Italy, Ireland, Greece, Spain). They can all default and pay zero cents on the dollar. Our total exposure (in the 5 largest banks) is $54 billion. That’s not chump change, but that’s not Lehman and AIG either.

So, I’m confused, whose fault is it? And where do I go “occupy” if I want to vent my anger? The choices: FASB, Governor Cuomo’s office, the Federal Reserve, hedge funds, and mortgage lenders (who were thrilled with the new Fannie Mae lending standards so they loaned out as much as possible).

What about Germany? What about Greece? What about the White House? President Obama has so confused the healthcare system, and created such confusion around mandatory payments from corporations that everyone is now afraid to hire. Two trillion dollars in stimulus and we’ve lost millions of jobs. How can that be? Guess what: there’s also $2 trillion in cash sitting in reserves at the banks. It never hit the money supply!

There are millions of private businesses out there that aren’t hiring because banks aren’t lending. Why aren’t they lending? Because they’re afraid of political uncertainty. If a bank is going to be politically targeted it needs all the money it can get. Plus, the Federal Reserve is paying banks to hold money. Why? Because we asked for it! We wanted the banks to stop being so greedy so we decided to encourage them to hold onto more money and not lose it all. The Fed does that by paying them.

Deep breath. There’s no scapegoat here. We’re all in this together, and we’re all (somewhat) at fault. So rather than planning an occupation, let’s focus on solutions:

The Federal Reserve should stay out of it: stop paying the banks to hold our money instead of lending it out. Heck, let’s even charge the banks, and unleash that $2 trillion that never escaped Quantitative Easing. Let’s bring back the uptick rule, and make it harder to short the market. What does this do? It makes stocks go up so companies can raise more money to hire people. None of the stimulus from Obama or the Fed has helped the franchise business. There are about one million franchises in the U.S. employing over 10 million people. How about we give those franchises a tax break so they can hire more people. Or set up a lending program to lend directly to them so they can start more franchises and hire more people. This would definitely help unemployment.

Meanwhile, please stop being so angry. Stop “occupying” places. Let’s be friendly and focus on solutions. Let’s be creative and focus on how we can use that energy for invention, innovation, and ultimately jobs.