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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (215319)	1/18/2005 4:33:14 PM
From: neolib	Read Replies (2) \| Respond to of 1573983

To contradict you, though, the stock market is not a ponzi scheme. It may feel like it sometimes, but the stock market is a true supply and demand market with some inefficiencies. A ponzi scheme, however, is specifically designed to enrich the first 1% of the participants at the expense of the other 99%. Surely you were paying some attention in the internet bubble days? When a company without a viable product but complete with a money losing business plan attracts a few million in venture funds, then rushes to an IPO assisted by various round trip "sales" to similar startups (thus creating the illusion of lots of commerce) and allows the founders and VC's to cash out 6 months or a year later before the little scam collapses, its hard to see that as much different from a ponzi scheme. In any inflationary financial deal, those in the inflating asset earliest benefit the most. Stocks are just such a deal. And trying to ensure a continued supply of fresh input is essential to keeping the scam going. SS into stocks is precisely that. Do equities fund private innovation? Sure they do. So do bank loans. One is based on risk using other peoples money, the other is generally based on a careful analysis of the prospects and a modest return. Both have a place. As a larger and larger fraction of people (assisted by the net) have gotten into the market, it has become increasingly a means of gambling. The fact that equities where developed as a means of raising capitol for the commercial market (and the net positive effect that has on the economy) is utterly irrelevant to most stock purchasers. They are simply trying to pick which asset is most likely to inflate the most. And it is also irrelevant to them whether it is "inflation" or "appreciation", a difference which is largely based on ownership perspective. Do this little thought experiment. Imagine if every college basketball player were viewed as a potential "startup". Their college stats form a basis for valuing them. When they turn pro, they would IPO. Shares would be issued (investment banks would take them public, who gets in on the pre IPO could all be done similarly to stocks). The shares would trade on the NBADAC exchange. The more money that comes into the NBADAC, the higher the shares are bid. More money chasing a limited resource is what is needed for good asset appreciation (is that inflation?) Individual investors can avidly follow the players of their choice and can convince themselves that their own insight and analysis of the game allows them to pick the winners while other people will pick the losers. Player stats replace company stats as a means of helping traders place a price on shares. Please not that just like in the stock market there can be general share appreciation (share price/player stats pick your metric!) for the market as a whole or for individual players vs other players. That is the market as a whole wins, as well as individuals winning relative to other individuals. Players, just like companies eventually decay, so we have all the makings of a very dynamic market. Players are delisted from the NBADAC at retirement. I suppose one might want to allow name brand recognition to continue, in which case they might never delist. What I'm trying to point out is that for most people investing in the market, the underlying mechanism is not relevant. There are a number of requirements however: 1)There must exist a willing buyer/willing seller mechanism, with some enforcement of honesty (although some might tolerate more or less of the later). 2)The traded objects must be subject to varying fortunes. It helps if the varying fortunes impact other traded objects such as a competitive environment produces. 3)A flow of information needs to exist about the objects, allowing the traders a means of analysis for basing trade decisions. That is all that is needed for a dynamic market. If the market has external effects (unrelated to the direct trader activity) that may be viewed as a side benefit (or negative as the case may be) but it is not necessary. Depending on the nature of 1-3 above, you get from the lottery to the banking industry. Stocks fall somewhere between those two.