Time To Cancel The Stock Market
Yes, I said it. Some people are already fuming at the title and rolling their eyes. Hear me out, just for this article. I’ll tell some dad jokes and make a couple points. It’ll be fun, they said.
After listening to Janet Yellen wander on about the unrealized gains tax, I was abruptly brought back to a conversation with a friend about the market itself. I’m not an expert in the market as evidenced by my lack of fortune, but a couple of old friends are experts by wealth and by general knowledge. When the market crashed in ‘07–’08, we talked a lot about how that situation came to be and why none of the people who caused the problems are going to see prison time. I think we saw maybe 2 people actually go to prison in a situation where possibly hundreds should. The Dodd-Frank Act passed and it was a limp wrist attempt to corral the system. While the act was meant to be a permanent fix to a massive amount of loopholes in the system, it was really more of a stop-gap with its implementation. In 2018, many of the provisions (in Dodd-Frank) were rescinded and as is seemingly painfully obvious we are back to our old ways yet again.
The idea that the banks were too big to fail was a logical fallacy only propped up by those that stood the most to lose. We were sold down a debt river with promises that the situation wouldn’t repeat itself. Had all the institutions been allowed to fail completely (including banks, car companies, and everyone else), the world would be a different place now. Some for the good, but a lot of folks would be out on their asses wondering what just hit them. The what-ifs are staggering. Had the car companies actually gone under without a bailout; who would have bought them? Some foreign investor?
In a pure capitalist system that many of us think we live in, that is precisely what would have happened. Those that risked it all would have lost it all and another would pick up the pieces and soldier on. I’ve had the discussion with others about how devastating that would have been with so many people counting on the safety of the markets for their retirement. With Social Security burning its own reserves faster than it can print new ones, a 401k is the only place people could reliably put money and earn modest interest. The whole time this is happening, behind our backs, the banking firms are looking for ways to leverage themselves to the moon at our expense; knowing full well there will be no consequences, because the people who would stand to lose the most are the ones that make the policies and write the checks.
Everyone still relies on the markets as a safe bet for their retirement saving. Why though? Why is this the vessel that so many people use to sock money away for when they get older and retire? Looking just past the surface at the stock market, the system becomes relatively easy to spot as more of a scam than a real investment. Looking back at why the market exists in the first place and how it was intended to function, shines some light on the subject.
Right from the beginning of what we would consider the stock market, people were thinking bigger and better. Companies that wanted to expand trade in the early 1600’s couldn’t raise the cash to have everything under one roof as individual investors. There was obviously a market for huge profit, so investors got together and consolidated funding to make a much larger company. These investors were given, in varying amounts, co-ownership of what they were investing in. At some point, the public interest grew beyond the main investors and those newly formed large companies began offering paper “shares.” Interest in public ownership of shares grew over time to the point when the London Stock Exchange was created, and then soon after the colonies created Wall Street.
In the 1600’s, the world was a much smaller place, but growing quickly. Companies could only grow so large and cover so much area, before physics and technology prevented them. These companies accrued more individual investors through selling paper shares to anyone and everyone. More money means more ships and more ships means more trade. More trade led to more profits and buying territories. What is fascinating about one of the originals (Dutch East India Trading) was that the idea of growth expanded until it collapsed on itself and ended up being nationalized by the Dutch government with all assets being seized. So, it seems “too big to fail” isn’t a completely modern quip.
Fast forwarding past 8-tracks and Walkmen, these early principles still play out. A kid who wanted to sell books filed for IPO and we all know how that turned out. I guess he was 30 when he filed, so a young adult. Why is Amazon still public? They don’t need funding, they do the funding. They buy other companies now. They have so much weight they could crush pretty much anyone and anything that stood in their way. Other than Bezos, the largest single shareholder is Andrew Jassy. He owns about 94,000 shares. The stock goes for around $3,400 depending on the day. Oh, he owns 0.02% of all outstanding shares. The math on that is staggering and it has nothing to do with Andrew’s wealth. About 470 million shares sitting out there with a realized value if Bezos were to buy it all back of around 1.6 Trillion. Take a breath, or stop rolling your eyes.
Some people at this point are asking, “So what, big deal? That’s how this works.”
Yes, yes it does work like that. Again, why does Amazon need public funding?
In the United States we speak a lot about how important small businesses are and how vital their existence is to our economy. I agree. The money that is invested in places like Amazon and others can be easily invested in other areas. Amazon could downsize a bit, allow more competition and keep the system humming. We have anti-trust laws to keep businesses from creating non-competitive situations. The stock market itself appears to be creating a monopolistic situation just by allowing businesses to be perpetually attached to public funding. Imagine the market being flooded with 1.4T of available funding for new ideas.
So, what is the solution? Similar to what has been echoed about the government…term limits. The market should be a place for startups to get capital. There are lots of people with a lot of great ideas and there would be a lot more funding for those ideas if these massive corporations that have no real need for public funding were non existent from the public exchange.
The idea would uproot a lot of traditional ideals of investing and may create more problems than it solves. Changing to corporate term limits would also fundamentally change how we evaluate profit. However, when you really ponder it, does Wallmart need to be a publicly traded company? What funding do they need at this point? When they offered the IPO shares there was a mission. That was 1972! Having these companies buy back stock and return to privately owned would free up a boat load of investment cash and likely spur a crap load of new vigor from folks thinking about starting a business. Going in this direction would also keep some of these companies, including banks from getting to the point of being too big to fail; and we come full circle.