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.

With Sean Hannity, and his ilk, we hear over and over and over again, the virtues of Bush’s tax cuts.

The Bush administration Tax Cut, with all it’s hoopla, really amounts to a policy of leaving no rich person behind, to wit:

http://www.ctj.org/html/gwb0602.htm

And the most alarming fact is stated:

By 2010, when (and if) the Bush tax reductions are fully in place, an astonishing 52 percent of the total tax cuts will go to the richest one percent—whose average 2010 income will be $1.5 million. Their tax-cut windfall in that year alone will average $85,000 each. Put another way, of the estimated $234 billion in tax cuts scheduled for the year 2010, $121 billion will go just 1.4 million taxpayers.

Also, Bush has given these rich-favorable tax cuts without a concomitant reduction in government spending, a double sin.

This widens the deficit. An ever widening deficit ultimately devalues the dollar, which causes a host of assorted economic problems, one of which is inflation (by virtue of the fact that the Fed has to lower the discount rate in order to prop up the economy. See, what happens is inflation caused the housing market to conjure up some fancy mortgage tools in order to allow people to afford to buy homes, which ultimately gave rise to the subprime fiasco we are in, today).

Here’s the killer: inflation is a tax on the poor, because the rich benefit from inflation, since they can hedge their investments and thereby preserve their wealth, whereas the poor do not have access to such methods. If all an individual has is $800 in savings, how likely is it that an individual who needs liquidity just to meet basic needs is going to buy a Krugerrand?

If a man or woman has $1000 in savings, which can purchase a value of X in goods this year, but next year that $1000 in savings can only purchase ten percent less, then, due to inflation, he or she has paid a hidden tax of ten per cent. Because of a deficit, the Government prints money to make up its cash shortfalls (this is a simplification, but ultimately, this does occur), which ultimately results in inflation.

See, the rich hedged by buying gold, or whatever upward moving financial instrument they purchased in order to preserve their wealth.

Republicans, in their litany of lies, lie again, and on this particular issue, the lie is beyond egregious.

Sean Hannity, on the Hannity & Colmes television program, no matter who is on to debate whatever, rarely fails to steer the conversation in a right versus left direction.

How often do we hear him say that to vote for a democrat is to vote for higher taxes?

But this is the lie that the right is perpetrating on the masses. Democrats only want taxes for those who can afford it. They do not want to raise taxes on those who cannot afford it, and the more responsible Democrats certainly do not want a tax cut without an accompanying reduction in spending to match it. By the way, this idea is supported by McCain, who, on that issue, is correct (insofar as his support of tying tax cuts to concomitant spending reductions. However, he doesn’t seem to mind that Bush’s tax cuts favor the rich).

And, which President was it who left his office with a budget surplus in the last fifty years? I’ll give you a hint: it was a Democrat (Bill Clinton).

During the last 60 years, Republicans were in the White House 57.2 per cent of the time.

During those years the Republicans controlled the White House, stock gains averaged 9.53% per year. During the years in which Democrats were in the White House, stock gains averaged 15.25%. Ah, so you thought or assumed that the stock market would fair better under Republican authority, did you?

Under which President in the last 60 years did the stark market yield the highest gains? I’ll give you another hint, it was not a Republican president (it was Clinton, again).

Give a million dollar tax cut to the poor, and you are going to see a lot of TV sets, etc,  the kinds of hard purchases which really causes jobs.

Give a million dollar tax cut to the rich, and what is purchased? A Van Gogh, A Picasso, which might cause a singular spurt of activity in job market for 15 minutes at a Sotheby’s auction?

Oh, that’s a straw man, you say? Not really, there is a difference between a simplification which accurately represents a larger picture, over the simplistic, which often resorts to straw man arguments which do not represent reality. The above idea presented is the the former catagory.

No, the Democrats are not without sin insofar as allowing the Fed to cause inflation, it’s true. However, I am more inclined to believe a Democrat will fight for responsible fiscal policy more than a Republican would.

The Republicans will tell you otherwise, but their deeds do not support it. They suffer from the simplistic idea that a tax cut is the panacea for the nation’s economic problems.

A tax cut without an accompanying reduction in Goverment spending is a tax on the poor. Not directly, but inevitably via inflation.

In essence, inflation is a transfer of wealth from the poor and the middle class to the Government.

The rich are untouched.