Thaddeus Gadfly

I’m against the whole concept of public corporations and the stock market, in general. Shared-equity of private corporations makes sense, but the public corporation is an idea I just don’t get. If the argument is that it is a means of acquiring capital to start businesses and fund entrepeneurial projects, why can’t bonds do that? Wouldn’t that be a better idea? Think about it. Bonds means that there are no shareholders making a lot of noise about instant returns on their investments, which might cause board members to pressure company officials to enact policies which only help the short term, and not the long term. Isn’t that what was happening to US Auto industry for many years, while the Japanese got a leg on us by long term strategies? Would that have happened if these companies acquired capital via the bond markets, where they had to pay them back over a long time, and therefore, the incentive would be for long term strategies?

What do stock traders do? What service to they provide? After the initial IPO, all you have is paper being shuffled around, it’s a veritable ponzi scheme, is it not? Some might argue that the stock will only go up if a company is healthy. Fine, but stocks are over-valued (way above book value) by this bidding process, so this is why I write that it is a “veritable” ponzi scheme. I don’t know that it is technically a duck, but it sure quacks and walks like one. In my view, the only ethical value of the stock is the book value (the accounting value) and any value beyond that is a ponzi value. By accounting value I mean that the value of a given stock is determined by  the total equity divided by the number of outstanding shares. Any value above that is a ponzi value. And the ability to trade stocks makes it easy for those who have inside knowledge to take advantage of those that don’t, and I will bet that this type of thing goes on a lot more than insiders would have us realize. Say you were at a gambling table, and your opponent (corporate insiders) could see your hand, would you want to play against them? This is precisely the situation we have with the stock market.

My view is that if there are going to be stocks, make them only transferable (saleable back) to the issuer, and not tradable, and the stockholder actually gets a certificate, holds onto for a long time. No bidding or auctioning of stocks allowed. This way, the incentive is to hold onto the stocks, and the true growth of the company via its ability to deliver a quality product, rather than then over-hyping of the stock by speculators, determines the value of the stock. This, in my view, is the more moral way.

See, the current set up allows those who are in-the-know to manipulate stocks, to benefit financially in a way other than earning money by providing a service to the community, by pitting buyers and sellers in a way where they can reap cash windfalls at the expense of others. Recently, a CEO dumped 60 million worth of his shares in his company overwhich he presided as Chairman. Undoubtebly, he knew that the stocks were going to crash. This means that those who purchased those stocks, were unwittingly involved in a mass transer of wealth, from the buyer to the seller. And it was not a quid pro quo, something of value for something of value, it was like playing against an opponent in a poker game in which the opponent can see your hand. This should be illegal. McCain said, “this is got to stop”, and he was correct.

I bet that this (the current state of corporatism)  is one of the great contributors to boom and bust economics, and I don’t see how this is a good thing.

If you know something I don’t, please enlighten me.