Stock Market Falling
September 18, 2008 by countereconadmin
Years of focus on the stock market and and the mechanization of how to increase it and invest it in have preventing many from asking what it is.
This article is being written in September of 2008 when yet another series of financial mismanagement and corruption blunders have caused the stock market to swoon and to take serious losses. Bears Stearns and Lehman Brothers are being bailed out by the federal government. Of course there are many of the same statements that were issued during the fiasco of the NASDAQ losses in 2001. However, here we sit seven years later and we do not seem to have learned a thing. In fact much of the legislation from 2001 designed to tighten up the system has expired. Clearly, there is little reason to learn if there is no incentive. Large investment banks, and mortgage banks continually benefit from creating asset bubbles, seeing them pop and then receiving government bail-outs. They have the best of both worlds, almost no regulation, but government backing when their Ponzi schemes run out of gas.
A Valueless Creation
What is the real value of a stock? We cover this in our post on
Stock and Unnecessary Illusion. But lets recap. The value of a stock is primarily in its value of being able to sell it to someone else plus any income or dividend. To corporations, it is the right to print money, a right that individuals do not have. Stock is surely an interesting creation. It is not used for barter, can not be used (
only transferred). Most people will never own enough shares to make a difference in voting (
which boards tightly control in any case) It is not a hard asset, not a currency, and also has a very minimal income stream (
the dividend).
The Realization
Once we recognize what it is, a fabrication designed to provide money to corporations that should have to go to a bank like other individuals, it seems clear that the stock base in the US should actually be valued at the net present value of the total future expected dividend payments. Certainly stock has a value greater than this, but it wholly based upon the perception and a very large mis-perception of what a stock is. Actually the stock market should fall much farther than it is falling now. We are told again and again how important a stock market is and how a capitalist system can not live without it. However, even without a stock market corporations are free to borrow money from banks. Actually a stock market is completely unnecessary and probably even harmful. A monopoly like GE could not exist without the incentives created to consolidate assets provided by a stock market. Economists have a word for this…distortion.
The Remedy
If want a mechanism for transferring money from the less wealthy to the more wealthy, we could simply institute a tax. This tax would tax individuals and delivery money directly into corporate bank accounts. Why have the middleman of a stock system if this is the desired end result and the actual result of the US stock market? It may sound outlandish, but there is massive amount of effort that goes into managing a stock market. Accounting firms must be hired to look the other way, earnings must be falsified, analysts must fail to do their research, IPOs must be issued and the the SEC has to spend money to pretend it enforces securities law and the corporation is forced to look very short term in its planning as executives need to continually get the stock price up so they can exercise their options. This whole system is inefficient, its far more efficient and direct to simply redistribute income from individuals to corporation. It would be more honest too.
Posted in Currency, Economic Bubbles, Monopoly, Stock Market | 3 Comments
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They made it illegal to short financial stocks today. In the UK as well through year end. It just shows how free markets really aren’t free if you’re doing things that are right but opposite of what the big boys want.
Yes, furthermore, as outlined in Kevin Phillips book Bad Money, the Treasury has a fund designed to intervene in the stock market to prop it up during bad periods. This of course is a cost to taxpayers, however, who receives the benefits? Big money has the biggest stake in the stock market, however, big money does not pay its share of the taxes (effective corporate taxes are 7% as of 2007). This amounts to a subsidy from the have-nots to the haves. All of this under the concept that the stock market is necessary and good for everyone and good for them in equal measure.
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