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

To: RetiredNow who wrote (215359)	1/18/2005 10:54:54 PM
From: neolib	Read Replies (1) \| Respond to of 1574061

It is a darn good system...one of the best created in the history of man. Take another example. Solar cells. Typical commercial ones are around 15% efficient. The best are < 40% IIRC. That is poor. The best we can do, but still poor. Whenever you call something excellent, you encourage complacency. This is one of the biggest problems with modern free market economies. We don't want to try any significant experiments, because dogma has it that we have arrived at the optimal solution already. BTW, this is one reason I favor tinkering with SS somewhat! Remember, my main point was to dispute the accuracy of your statement that our stock market is a ponzi scheme. Sorry for getting you stuck here. It is not = ponzi scheme, it has some similarities. Some of the structural underpinnings of the market (insiders, VC's, pre IPO dealings and IPO offerings, lack of company transparency to shareholders, etc) encourage or at least facilitate the transfer of wealth from the last in to the first in. This is how ponzi schemes work. What I see happening increasingly in the USA financial scene is the following: Joe 6P toils away swinging a hammer (or whatever) collecting a wage for a more or less honest day's labor being paid a wage that is pretty constant, and leaves a bit left over for savings. He squirrels this incremental money into a stock fund, which appreciates. But the appreciation is less tied to the underlying fundamentals of the company, its products, and profit, and more tied to the relative valuations of stocks in general. When there are lots of dollars chasing not enough investment opportunities, the assets appreciate nicely (or perhaps inflate?) Do you see the issue here? Joe 6P is in the market for shares, and there are not enough. So the free market responds in one of two ways, higher share prices or more shares (inflation or creation). Thus a market pressure exists to create new companies and IPO them. I suppose one should view this as positive. New companies are good right? They innovate and employ people. But I see this as a transformation that is little commented on, and whose implications are not well understood. The old model was to conceive of some profitable business venture, and turn to the markets as a means of growing the venture. Businesses did not IPO until they had a good track record, so buyers could "fairly" value the shares. The new model has a goal of IPOing. The business is somewhat secondary. Similarly, owner wealth and even a large fraction of employee wealth is expected to come by transferring wealth from Joe 6P investor rather than Joe 6P company customer. It is this later dynamic which makes stocks somewhat like a ponzi scheme. The business aspects are there, but they function somewhat like a bait on a fishhook. So, stocks do not = ponzi scheme, but they can be close in some cases. Best to think of a set of basis vectors (orthogonal). One is pure "stock scam", the other pure customer/banking commerce. By pure stock scam I mean the company produces no income from a product or service, but obtains funds from investors only. By the latter I mean the company income only comes from the profitable sale of products or services and the source extra required funding is loans at fixed terms. Individual stocks are vectors with some component lying along both basis vectors. The vector clearly changes over the life history of a company, so many companies might start as what I call a "stock scam" but end up not being one. When the insiders cash out and the company folds while the vector is still largely along the "stock scam" axes, I call it a ponzi scheme. No apologies either!