Forum Post: OccupyTheConstitution Stock Market
Posted 12 years ago on Jan. 10, 2012, 6:41 p.m. EST by Nanook
(172)
This content is user submitted and not an official statement
There are some institutions that have been with society so long that their purpose and value are often taken for granted. One example is prostitution. It is often jokingly referred to as the "oldest profession". Nonetheless, while not addressed in the U.S. Constitution, U.S. society has deemed it bad, and has banned it by law through state laws.. The current U.S. exception is Nevada. Another closely related issue is gambling. Both state and local laws, outside the constitution, deal with that. I selected these two examples because I believe Wall Street and the stock market belong in the same category.
The entire stock market has been corrupted away from the fundamental reason for its creation. It was originally created to help BUSINESSES raise money to start and grow. What we have now is mostly just GAMBLING. The whole market is very much like a Ponzi scheme. Like gambling, it is also a "negative sum" game. Except for the initial investors, people can gain in the market only as long as prices go up. BUT, like a Ponzi scheme, the last one holding a stock when the price falls loses big. And, like a casino, for every trade, the HOUSE takes a cut! We need to recognize the GAMBLING element of the market and STOP IT!
What should be done is to separate the stock market into a PRIMARY and SECONDARY market.
The primary market would be the original intent of stock ownership. These are the IPO investments. The goal is to raise money to start or grow a business. The rules for this need to be tightened up a lot. ALL citizens should be able to invest in these as simply as they buy stocks now, and no special deals should be available to company employees or other investors.
The secondary market, where stocks are just traded as gambling, if not shut down completely, should be controlled by a version of the RICO commission. A very important provision for this market is that NO bank deposits or pension funds should be allowed to participate in the secondary market.
As for the commodities market, a similar division should be made. Protecting businesses from things like climate variations should be handled with insurance. Speculation should be moved to the RICO commission and limits placed on who can invest and which commodities can participate.
This point does raise another issue: responsibility in business. When someone sets them self up in business as a "professional" with "claims" like: they are "experts", have years of experience etc. why shouldn't society hold them responsible for those claims? Somehow, we have let all the financial advisors get away with setting up laws that let them approach investments like GAMBLING, yet still use claims like they are experts. So, in changes proposed for the stock market, I suggest we create two distinct categories of investment financial professionals, similar to what the country did after the Enron scandal.
One category is for people who provide services to accomplish MANUAL TASKS using strict rules. These are people like stock brokers. They would be paid for their labor in executing trades.
The second category is for "professional" advisors. These are people to apply specialized knowledge to advise OTHER people how to do something. These are the investment advisors who recommend stocks and set up portfolios. However, because they CLAIM special knowledge, they should bear RESPONSIBILITY for what they recommend. These advisors should be compensated PRIMARILY on OUTCOME. If their suggestion produces a profit, they should be rewarded a portion of the profit. HOWEVER, if the investment results in a loss, they should also pay a penalty for that loss.
How might this look in practice? Here's one example. Let investment advisors charge a "retainer" for their services, subject to the limitation that the sum of ALL retainers for services not exceed the government measured annual average individual income. The remainder of their income would be an adjustment, plus OR minus, based, not on principle, but on aggregate annual investor gains or losses at whatever load fee they apply, which must be stated prior to making an investment.
A longer discussion of this issue is available at http://A3society.org/StockMarket
So, please jump in here with comments.
(This post is part of a collection of posts aimed at launching a new process called the National Opinion Collection System (NOCS). For more information on the process, see http://occupywallst.org/forum/occupytheconstitution-introduction/ )
I agree with your desire to decrease speculation, and I would like to offer some clarifications and ideas.
The initial issue of stock by the corporation is the stock that raises capital for the creating or expansion of the corporation. Subsequent trading of the stock is where the speculation comes in. Speculation does have negative consequences in that it fuels volatility and drives our corporations to a short-term view.
I believe we could retain what's good about the stock market (raising of capital) and dampen what bad (speculation) by simple modification of the tax code. One idea might be to apply the lower capital gains rate only to initial offers by a company seeking to raise capital while taxing all secondary trading as ordinary income. I would also suggest lengthening the capital gains period to 5 if not 10 years to lengthen the view of our corporations.
Though you didn't address it, I think we also need to reform our tax policies in regards to commodity trades. Speculation in commodities has negative consequences even greater than speculation in stocks. I suggest we tax all commodity trades as ordinary income. Companies that are buying futures because they actually plan to take possession of the commodity would not be taxed, but folks who are buying commodity futures simply to resell them would be taxed.
Per the above, speculative gains from both stock and future trading would be taxed as ordinary income. Losses on such trades, however, would not be deductible. In this way, we would introduce a very strong damper on speculation. We would, of course allow deduction of losses on non speculative trades.
Since I'm on the topic of taxation, I would also like to suggest that we tax companies on revenue rather than profit. This tax would obviously be very low compared to our current rate, and it's purpose would be to constrain the size of companies to help dampen the tendency toward the mega-company and the "too big to fail" problem.
Why would I buy shares of stock if I cannot ever sell them?
What if the members of a pension fund want their money invested? Perhaps it would be better to eliminate pension fund in favor of 401k programs where employees choose where to put their retirement funds.
I have a 401k rollover from 1994 that had $9,500 in it. I have not added to it since I left that company and it is now worth $63,000. Why would you want to prevent me from having that freedom.
I never implied that a person who bought stock could never sell it. In a primary market, stock is bought directly from companies and sold back to the same company for the same price. You make a profit from dividends.
As for your 401K rollover, you were very lucky! Because the principle of many 401Ks is invested in the market, every dollar you made, all $53, 500 worth, came from a loss to someone else. As I said, you were just lucky. You could have been writing this comment complaining that every dollar of your supposedly secure $9,500 was totally wiped out and now you were living in a tent. Why? Because, in a secondary stock market, that's what must have happened to someone else. Someone else lost $53,500 ( plus broker fees ) to pay for your gain.
It is not true that someone had to lose $53,000 In 1994 the DOW was at about 2,300. Since now it is at 12,300 some people made money along with me.
Sure my investments lost money now and then like in March 2009 when it went back down to 6,626 however I saw that as an opportunity to put more money in. That was just one 401k. I have been putting money in at every job I had since then. Lets just say I am not worried about retirement. Everything is diversified.
I am starting a coalition to stop the use of the term "Ponzi Scheme" in favor of any other way of describing it.
How about outlining your thoughts about the reasons you want to do this.
I feel that it lacks the kind of creative human expression which we need to communicate.
Sorry, my request wasn't clear. Could you take a few minutes and expand your viewpoint for me and others to understand. For example, is there a reference which discusses the term "Ponzi Scheme" that you think is a good one. When your supporters present their case, what is the short description they use for what a Ponzi Scheme is? In short, this is a good place for you to describe and explain the goals of your effort.
Never is a good time to use the phrase "Ponzi Scheme". The term is so misused and misunderstood, that I do not recommend even using it to describe a Ponzi Scheme. Instead, my supporters are encouraged to use the term, fraud. This term points the audience in the general direction that an intentional deception has or will occur. From there, more specific investigation can describe the details of said deception. In short, I am proposing we clean up our rhetoric so that we say what we really mean to say.
Actually, money is made on both sides of the market. Up or down. If I sell a stock short and the market decreases, I make money. For you to make the statement that only in an up market is money made simply makes you look stupid and obviates whatever point you are trying to make.
The stock market fulfills it's primary function every day. Capital is available to every company listed in the form of stock sales. Secondary investors provide the liquidity necessary to make sure that capital is there.
I make my living trading stocks, I'm the guy you love to hate. I work maybe two hours a week and literally make whatever I want to make. It fascinates me to watch you people flounder around when the opportunities available in the richest society the world has ever known are right outside your door.
At any rate, if you're going to "change how Wall Street operates" you should at least understand how it works now. Otherwise you just look like idiots.
Anyone reading this comment should understand that wigger is only seeing his part of the transaction. He's correct in his claim that a person who sells short in a down market makes money on the short sale when he re-buys the stock at a lower price. But where did wigger's gain come from? It came from others who bought the short sale from him. That is, for wigger to GAIN money selling high and later re-buying low ( which is what a short sale means ), others had to LOSE money by buying high at the time wigger placed the short sell and later selling low when wigger re-bought the stock. It's essentially a zero sum game, with additional losses for broker fees. Of course, if the stock goes up after the short sale, the short seller loses and the others gain.
Good lord. There are some very good, simple tutorials on the internet that can give you a basic understanding of stock trading. I don't think you should attempt to explain how the market works until you get a chance to go through that.