What about this

[.... callchet ....]

And what would be wrong with this? A company issues stocks, gets money to build and grow. The stock holders never sell their stock. The company

builds and grows and pays a dividend to the stock holders. And the original stock holders still have their original stock. What is wrong with that ?


" People First "

[seemunkee]

1. Nothing as long as the company doesn't need an infusion of cash

Then it would have to issue more stock. My wife works for an employee owned company that more or less works that way. The company I work for is pretty closely held by the company principles but we need money for R&D. They're going to have to issue more stock to do so.

[.... callchet ....]

2. Ok

then they sell more stock, but the buyers of the stock don't trade it. That is what I don't understand. Where does trading of the stock come in to place ? Why is that necessary ?

[David Ricardo]

3. Because if demand for shares of the stock is high enough

there is money to be made selling stock to someone who wants it more than you do. (marginal utility)

Why does the buying and selling of tickets occur outside sports arenas? The scalpers are trying to get the tickets to the people who are most willing and most able to buy those tickets.

[.... callchet ....]

4. Ok

so basically the stock market is a way to generate income without providng a good or service. It serves no useful purpose in itself .

Could the world exist fine without the stockmarket ?

[David Ricardo]

7. The fact that they exist in the first place might be the best place to look

Company X generates a certain amount of profit per year.

I see a better way to run the company more profitably, or even one that might be worth to me liquidated than running, so I buy enough shares to hold a majority stake in the company. Presumably the existing shareholders have asked for a price acceptable to them, so they are better off. I now hold a company that I think I can run either more profitably or liquidate, either way I am getting a return acceptable to me, so I am better off.

The fact that both parties are better off, in my mind, justifies the existence of such markets.

To further discuss, however, you have to look into some of the dynamics of corporate governance such as principal-agent inefficiencies and stock price speculation (a stock is as much as a commodity really as an orange), etc. etc.

But the percentage of ownership in the company, represented through stock, is the good or service being sold, so I cannot agree with your first sentence.

[anigbrowl]

32. It does provide a servce - liquidity

I own shares in company X like you describe in the OP, but I fall on hard times for some reason. It's more useful to me to liquidate the shares by selling them. Your OP assumes all shareholders enjoy positive cashflow and can afford to hold the shares indefinitely. alternatively, suppose I think company X is a great environmentally responsible business and I want to invest in it, but I don't know when the next share issue will be and it's sure to be over-subscribed. Well, I can go to the market to buy them if they're public.

Basically what you're describing is a private equity company, and they exist, but they're not allowed to advertise their shares for sale o the general public. If you do want access to that capital market, then your shares have to be publicly tradeable.

[A HERETIC I AM]

5. Many thousands of closely held businesses offer stock that is not traded.

As the poster above mentions, those companies offer stock to their employees. Two large, well known companies that operate this way are Publix Supermarkets and Penske Truck leasing. Both companies offer company stock to their employees as part of their retirement plans. The shares are not publicly traded so the employees can not sell their shares to each other or anyone else, they can only be "redeemed" by the firm.

After reading this thread and the other one you commented on, I get the distinct impression you have no idea what stock really is, how it's created and what a stock market/exchange is and how it operates.

[.... callchet ....]

6. Well

I ask questions to define a position. I have always analogized the stock market to a pyramid scheme. I think I have characterized it correctly

and after reading these posts it further solidifies my opinion I am sure that the world could exist fine without trading stocks. It would just

eliminate a huge source of income for stock brokers. For sure it caused us a huge mess.

[David Ricardo]

8. How would we efficently allocate ownership of control of corporations without them?

To date, market based systems have proved to be the most efficient (note I didn't say fair) way of allocating goods (including intangible ones, such as ownership).

If someone values the ownership of a company more than the current owners and both parties agree to a price of that ownership, then why not allow the transaction. The broker merely facilitates the deal, no different than a merchant selling goods that other people made.

[.... callchet ....]

9. Here is where I see the problem

"The broker merely facilitates the deal" Causes the brokers to continually drum up new business to stay in business and keep the stocks trading.

Since the intrinsic value of the company has not appreciated, then the secondary selling causes and represents inflation.

[David Ricardo]

10. Does intrinsic value really matter though?

First of all, how do we measure intrinsic value?

Prices are ultimately set by buyers and sellers. The only reason why stock prices rise is because people are willing to spend more of their own money than someone else to buy that stock. We interpret that to mean that they value the stock more than the person paying less.

[A HERETIC I AM]

11. Nonsense.

There is no obligation for a company to issue shares, either for public ownership or private like Publix and Penske do. There are thousands of other companies large and small that have issued no shares of stock at all.

Take as an example the United Parcel Service. For decades UPS offered shares to its employees as part of their retirement packages. The shares were not publicly traded. In November of 1999 they went public. Why would they do that? When a company issues stock, the authorize a specific number of shares as the maximum but may only issue a small percentage of that number. They also retain ownership of large blocks of the issued shares called Treasury Stock. UPS knew, like every other company that goes public, that there are distinct advantages to having their stock trade publicly. It is an extremely effective way of raising money for expansion or other projects.

BTW, this "huge mess" was not caused by the stock market.

[.... callchet ....]

37. In order for

the market to increase in value, there has to be inflation. The government had to work overtime and weekends to print enough money to keep up with this inflation. Every time a stock is traded, there are fees. There is nothing in a companies structure that specifically accounts for making more money to account for these fees. Then there is the increased value intimated by the salesmen selling the stocks. "This is a great stock, you have got to have this in your portfolio". That increases the price of the stock. So where does that money come from.? The only place that this mess comes from is the stock market. If you spend a hundred dollars in the market, you don't get a hundred dollars worth of stock. You get X-minus transactional fees worth of stock. That alone is inflation. For example one hundred dollars you get $97.50 worth of stock. On a trillion dollars that is 17.5 billion. And that is inflation. Nothing else demands more of a return on money without adding value. I don't care if that is how you made your money, more power to you, I wish that I could have done it, but the point is it causes inflation. If inflation remains at 2% every year for 30 years, that is not a stagnant inflation rate. Each year is based on the previous tear with inflation added and then calculated. The results are the same as if you had placed a fixed amount and left it in there rolling interest in every year in a savings account paying 2% annually.

[Citizen Number 9]

12. Chet, the stock market exists to provide a central place to buy and sell stock

It does not control the price of the stock. Buyers and sellers control the price and it is based on supply and demand.

People want to make investments in companies they think will appreciate in value.

I can appreciate your efforts to wish away things you don't like or don't understand, but it simply can't be done.

[.... callchet ....]

13. I am looking

for some idea of what is going to happen and what sort of changes are going to come about. I have been describing and predicting this financial

situation on my web site for years. There are going to be some drastic and dramatic changes to effect a recovery and to pay for it.

The biggest problem we have is the debt we have now that we didn't have in the '29 crash and ensuing depression. There is no money to pay for this

recovery. We as a nation have no industry to speak of. The only assets we have are in the market. in savings accounts and asset holdings. The market

as it is is going to suffer the most with new regulations. The market will start to come closer to banking finances and banks will come closer to

fully asset backed loans. I am trying to see the future for the market based on what the market has to offer as a value industry. I don't see

anything good for the market. There is a strong and powerful contingent supporting the market as is as well as opposing a government financed

recovery. As there are government assurances for savings, there will have to be government backed assurances for the poor and unemployed. As savers

have to have faith in the banking system so will the rest have to have faith in the country. I am telling my friends to buy gold and put it in safes

in their homes. Solutions will have to come from obscure non relevant sources. All troubled resources speak only to defend their position.

[Citizen Number 9]

14. The Stock Market is a very democratic institution

It makes the ability to invest in companies available to everybody, not just those with wealth or privilege. The privileges of investing are open to everyone with even a few dollars. In the past, these kinds of opportunities were withheld from common folk and we didn't like that, now we don't like that they are available?

We have no money because we didn't save any. Plain and simple. People wanted to spend everything they had....and everything they hadn't yet earned. That is no one's fault but our own and nearly everybody participated in it. A number of rational voices spent the last 10 or 15 years warning that we couldn't keep spending the way that we were. They warned that it just wasn't sustainable. You could see it in the prices people were paying for homes....much of it with "cheap" credit. That was wrong-headed and now, the only way is to work ourselves out of it. If we had the money, we could just write a check and chalk it up to a good lesson, but we don't have the money. We will actually have to do the hard labor that many people spent the last 10 years avoiding. Of course, people will have to accept less, materially, as well.

Please support your contention that we have no industry. Facts, please. Last time I checked, about 20-25% of the GDP was from industry. Back at the Depression, it was only like 40%. That's not as big a difference as you have been led to believe. You might also spend some time explaining why industry is so preferable to other income sources. Our country is rich in assets, not the least of which are it's people, infrastructure and institutions.

There are already substantial government backed assurances in place for the poor and the unemployed; have been for a long time, so I don't know what you are talking about there.

[.... callchet ....]

15. Even more bad news

We just got back from dinner from a very popular restaurant that we hadn't been to for about three months. The prices have almost

doubled and it was almost empty when we got there at 8:30. Our trade deficit shows that we are not exporting enough products to make

any difference.The industry we have is almost non-existent to casual observation. Hardly anything bears the made in USA label25%

of GDP means we can't trade with other countries who are also in dire straights and will be looking for durable goods to trade for

and not services. As for our assets to pay for the recovery our people, infrastructure and institutions won't pay the bill. Real

money will have to be infused into our system to pay for jobs to put people back to work. The government backed assurances for the

poor and unemployed are inadequate and below poverty levels. They have no equitable adjustment for inflation. I appreciate your

academic presentation, but I think we are on the brink of economic disaster. What is your opinion on that ?

[Citizen Number 9]

17. Chet. Trade deficits have two sides.

Could it be that we bought too much from abroad with all that credit the Chinese were willing to extend?

I don't only care about the industry that is apparent to casual observation. Facts are facts. Industry is industry.

People, education, infrastructure and institutions are the machines of commerce. They are extremely valuable. It takes a long time and even more money to create and train them.

We will need to put money into the system in the next few years to avoid a serious economic problem, that is true.

Not too many people will agree that we should support non-productive members of society in a style that some working folk can't reach. There needs to be some motivation to improve their situation. It is good that we, between government and private concerns, have the compassion to be concerned about providing opportunities for them.

We've averted the first potential economic disaster which would have been the complete collapse of the banking and credit industries. They are severely wounded, but they have the ability to heal themselves with time.

Now, the new Administration will have to concern itself with creating jobs so we don't slip further into economic inactivity.

[.... callchet ....]

19. Trade deficit

Absolutely true. We bought too much from China. The result of that was less money for our infrastructure. Diminished tax base. Loss of jobs and industry to China. The trend has always been to finance every developing countries economy. Both by design and accident. Starting with Japan. Due to their low labor rate after WW1 they were producing cheap goods. Their cheap goods were of poor quality. For example look at valves. Sloan made a very durable valve and some made in the 50's are still in use today. Japan made a valve that looked exactly the the USA made Sloan valve. It competed with the USA valve. Because it was cheaper it outsold the Sloan valve. It sold at a similar price, but its quality was atrocious. The price that it sold for here did not reflect it's cost but was based on the cost of the Sloan valve. Consequently Japan received money for goods based on USA labor costs that only cost them a fraction of those costs to produce. Our Customs department should have taken care of this problem. So then after Japan you have Taiwan, and South Korea, and India, and so on. We have been importing junk for over 50 years and exporting jobs. A small vocal but influential faction influenced our trade rules to their benefit but to the detriment of the USA. You can't blame the consumer. If there is a choice between one valve or one valve and and a happy meal, the latter will win. We still have an import export tariff policy that positions the USA as the benefactor. We pour money into Columbia but suffer as a least favored nation in Tariffs. There is no equity reflecting our treatment of Columbia. This is pervasive throughout the world with our trade partners.

I can't find any data supporting durable manufactured goods as 40% of our GDP. As a matter of fact I can't find any data about the total number of people unemployed in the USA. The unemployment rate is based on filings for unemployment, not the actual number of unemployed.

I agree with you about the assets of our country, but there has to be an infusion of money to release these assets. The potential is there but there is no money to release or develop the potential. The source of the money is going to be the battle. There is not enough money to solve the world's economic problem. Since we have such a huge international debt, we are integrated into the world problem. The world will have to file for bankruptcy. World wide and national debt will have to be either absolved, abolished or renegotiated. 6 trillion dollars can't be paid off. Regardless of the ethics of owing debt.

The public deserves consideration. If you can't work, can't find work or don't want to work should you be killed ? I know we don't talk about Darfur, Sudan or the Congo. So I guess the answer is that those that have don't care if the rest live or die. Throwing a penny into a crowd of beggars doesn't fulfill the moral and humane obligation to help.

I read, watch, listen to, absorb and evaluate news constantly. I see no evidence of an equitable or efficient aversion of the credit collapse. There were positions advanced, but when we have a thought process that perceives the difference between 5 billion and 6 billion as one, I don't believe the presentation reflected the problem. For instance the Ma doff situation is reported as 50 billion dollars. 50 billion dollars is the cost of five hundred thousand homes that cost one hundred thousand dollars each. His deal was 7% of the cost of the bailout. That is an unbelievable figure but I didn't see any proportional consequences related to it. He could have started a world war if the wrong people had lost money. We still haven't seen the real consequential repercussions from his swindle.

The new administration will have to start food banks, turn farm subsidies into free food and start free clinics as well as the monumental task of preserving world order. He has placed the environment high on his list. I think his highest priority should be


" People First"

[Citizen Number 9]

22. Life. Who promised you a rose garden?

See, the problem with the valves? That's one of education, and to some degree self-discipline. What you are saying is that, in the long run, the Sloan valves were better. The consumers and purchasing agents buying the valves needed to be educated to the fact that even though the imports appeared cheaper, the Sloans were the best for them in the long run.

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_sector_composition

The BEA has historical information: http://www.bea.gov/national/nipaweb/SelectTable.asp?Selected=Y

"There is not enough money to solve the world's economic problem." That's the problem with money. :)

You have to be very careful GIVING things to people or you will create a worse problem than you had before. People need motivation to function. That is what Economics is about. A few of us can't support all of us in the style that can be imagined by your average person.

Didn't all those people investing with Madoff enjoy the 10% and 11% returns on their money? There was a risk that went along with that and the worst scenario was realized.

Life has risk and it has bad events. You can't wish that stuff away. It's life. Best to consider it and prepare for it. Same goes for your personal health care and your retirement.

[.... callchet ....]

24. Wal-Mart

"See, the problem with the valves? That's one of education, and to some degree self-discipline" When monetary concerns are involved you can't teach

that to anybody. As evidenced by the success of Wal-Mart. You point out a principle and recommendation, but it doesn't work when monetary

concerns are involved.

[Citizen Number 9]

25. Chet, some people seek out the lessons and apply them;

they go on to do better than those who ignore the lessons in favor of quick gratification.

That's the principle of self-discipline. From what I can see, it is taught (or not taught) by parents in the first few years of life, although it is not impossible to learn or unlearn it in later years.

Like anything else, it's a choice we have as free human beings. Organisms have to live with the choices they make.

I don't understand the WalMart reference. A can of Dinty Moore beef stew is the same no matter where you buy it.

[.... callchet ....]

26. Wal-Mart

About 90% of the goods at Wal-MArt are from China. For example take tools. You can buy a wrench at Wal-Mart that is made in China. You can buy a similar wrench at some hardware stores or tool supply company that is of a higher quality that are made in the USA. The tools made in the USA aren't sold in Wal-MArt because they cost more to make and need a higher retail price. The USA tools will last longer and are a better value for the dollar over the life of the tool. The tools at Wal-Mart will outsell the other tools because they are cheaper. There are brand specific items in a product line that are sold in many outlets, like Dinty Moore, but then there products lines with many brands of which only the cheapest ones are sold in Wal-Mart. Wal-MArt has eliminated the chance to opt for a different quality choice.

As far as people doing better in life, some people never will. In fact most people never will. They need to be looked out for. They have no choice but to shop Wal-Mart. It may be that they don't even know there is another choice. But ignorance should not be punished or taken advantage of. You know that tuna fish is generally cheaper by the ounce in the smaller cans. But the vast majority of people don't know that and they assume that the larger or bulk quantity is cheaper. The same pricing goes for a lot of cereals. Do they make a choice? No. They don't even know that there is a choice to be made. Are they ignorant? Yes. Should they be punished or taken advantage of ? I say no.

[Citizen Number 9]

27. China can make things of just about any quality you want to pay for.

The reason the cheap stuff comes from China is that, well, the demand is for CHEAP stuff and they are really good at that. Try making cheap stuff in the US and you just have more expensive cheap stuff. You can't buy Ridgid or Proto at WalMart because that's not what folks go there for. They can't carry everything in the world and they opt for the lower end stuff because that's what their customers want.

This country does look out for the segment of society that needs assistance to meet life's daily challenges. Look at all the social programs we have and the effort we have made to make sure that each person has something in their retirement. The mistake is looking at your life and assuming that everyone needs to have that. People are different and they achieve different things. Each person has to live their own reality without having someone else make the decision for them.

What this country needs to keep offering is OPPORTUNITY. That way, we can be sure that people who can and want to make the effort have a chance.

Maybe the pricing regulations we have is one indicator. We require that the price per oz is posted so people who are math challenged can compare the tuna fish. That doesn't seem to make all buying habits the same, does it? My personal conclusion is that people are too LAZY to even look at the little tags.

[eridani]

28. OK, bright boy. Suppose everyone was "disciplined" and saved most of their surplus

That eliminates a consumer-based economy right then and there, and there is no way to make money out of new investments.

[Citizen Number 9]

29. I'm not sure what you're getting at.

You seem to be reacting to use of the word "discipline", yet your post doesn't follow from what it's attached to. I don't believe I have promoted saving "most" of anything.

You do know that the US savings rate has been hovering around zero, don't you?

I have no idea what you are talking about in terms of making money out of new investments.

[eridani]

30. Without all those undisciplined consumers, what is there to invest in? n/t

[Citizen Number 9]

31. There is life outside of GameBoy, you know.

Maybe even beyond Wii

[anigbrowl]

34. Um...you seem to think the economy begins and ends with consumer products

At a minimum, you still have food, clothing, building materials, and other basic necessities. Saving money instead of wasting it doesn't mean the end of all economic activity. Yes, more saving will reduce consumer spending and impact retailers, but it doesn't bring the whole economy to a halt. 10% is a sensible savings rate for most people. Additionally, as more people save, banks can lend more so there's more credit available for commercial expansion.

[eridani]

36. There are very small profit margins on food

Making clothing is outsourced for the same reason. There are no opportunities for large gains without undisciplined consumers.

[Citizen Number 9]

38. WITW are you talking about?

I'm holding a $6.00 box of cereal whose contents are worth about thirty cents.

You're all over the board with no apparent central focus. Get your ideas together and re-present them, unless of course you're still trying to show it's impossible to have an economy with "savings". That would be just plain foolishness.

It's like you are trying to rationalize why you don't have personal savings.

[eridani]

39. So where is the stock churning for General Mills? Don't see it n/t

[Citizen Number 9]

40. You can't be serious. You are still doing it.

I'm beginning to develop a new theory about posters who name themselves after stars.

Look at General Mills compared to the DJIA. That's pretty lazy on your part.




Not that the stock price means much compared to what we are discussing, I'm just humoring you by playing your own nonsensical game.

[eridani]

41. So it's a growth stock now?

Large stable companies selling necessary stuff pay nice dividends, but there isn't a lot of scope for buying low and selling high.

[Citizen Number 9]

42. What is it you're trying to say?

:shrug:

[mrreowwr_kittty]

43. Jesus christ why is your freeper ass still here?

FYI genius, consumer spending is 70% of our GDP. If all those people hadn't been "overspending" the economy would have tanked years ago. Maybe it should have but stop blaming Americans for doing what they were told was their patriotic duty to re-energize the economy after 9-11.

[Warpy]

16. Nothing until cheap debt comes around and the company

overexpands while the shareholders go into debt to buy more of suddenly skyrocketing stock.

[HamdenRice]

18. The reason stocks need to be traded is that different investors have different needs

In your example, you seem to be accepting the legitimacy of a simply model of the company issuing stocks and the investors simply buying and holding. You seem to be questioning the need for a market of buyers and sellers.

So here is why you need a market, and buying and selling. Different investors have different needs. At the same time, companies go through life cycles that make them attractive to different stockholders.

For example, when a successful company first starts out and has an initial public offering (ipo), it typically does not offer dividends. That's because if it has discovered a really profitable niche, then more than likely internal re-investment of its profits is much more profitable to the investor than whatever the investor could do with dividends. Ford, for example, refused to provide a dividend for a long time (it had to be sued eventually to do so). IIRC, Microsoft also would not pay dividends. So the kind of investor who buys an ipo is someone who has the time to wait to take profits from the increase in value of the shares. For example, a young person investing for retirement might buy this kind of "growth stock."

When a company becomes mature, its internal profitability goes down, and to many investors they are better off getting the dividend and using/investing it elsewhere. The company becomes something like a utility, doing pretty much the same thing, throwing off the same dividend year after year. A retired person might invest in this kind of stock.

As the company changes from a growth stock to a mature stock, it will attract different investors. There has to be a place for one group to sell out to another.

It is also extremely important to all investors that their investments remain "liquid" -- that is, immediately convertible into cash, in case the money is needed. Hence the stock market has to be very large and liquid if it is to attract investors, and that means lots of daily trading. Speculators, while despised by many, do play a useful role in making markets liquid. There is no guarantee that the long term growth stockholder will find the retiree income stockholder in my example above, unless there are also people willing to just buy and sell as the opportunity presents itself.

[.... callchet ....]

20. I understand

how the market started and developed. It is debt free financing for the business issuing stock. From there it has developed into a

business in itself. I today am contemplating a business to offer on the market, but I am saying that the market has developed into

an unsustainable business. It has survived and developed on fiat and the ability to keep those presses running. But as debt grows

exponentially and the presses are printing inflation, we have a real problem.

[Statistical]

21. Nothing about that made any sense.

You do understand that eliminating the markets would massively help the ultra rich.

Raising money privately is very time consuming. The "transaction cost" is very high THUS most of the time the minimums are very high.
Try investing money in a startup company. They usually are looking for a min of $100K to $500K per investor.

Removing the markets would remove the ability for poor and middle class to EVERY have access to capital ownership.

You essentially would create a barrier (or strengthen) that would ensure poor and middle class always remain that way.

[.... callchet ....]

23. Hope

"for poor and middle class to EVER have access to capital ownership" They will never have it anyways . They have a greater chance to win the lotto. But in both cases they have hope. The type of start up companies you are referring to don't come from the ranks of the poor. Do you teach economics ?

[anigbrowl]

35. Wrong, wrong, wrong

You want capital owner, but you're not rich? Willing to put in the time reading about companies and studying where's a wise place to invest your money? Yes? Then put a few hundred bucks into e-trade or one of those services and boom, you've bought some stock and are now a capital owner. If you invested wisely, the value of your shares will grow.

And while starting up a new company is definitely easier if you're well-off (for obvious reasons), it is possible to start with very little and be successful. I work in the film business, which is a roller-coaster ride even at the best of times. Indeed, I'd be better off financially if I'd spent he last 5 years flipping burgers, which at least has the virtue of being predictable. But if you come up with a good product you can do very well (the film business is like regular business on steroids, insofar as the product design, manufacturing and sales cycles are hugely compressed).

Kevin Smith made his first film by maxing out his credit and assuming that he might well default or else spend the next 5-10 years paying them off. But his film, Clerks, turned out to be entertaining even though it has almost zero production value (black-and-white because it's cheaper, the camera never moves, lots of long shots because it means less editing work to do later and so on). Similarly, a lot of tech companies come from a few students or programmers pooling their resources and coding up software that does something interesting and original. Then you call around and look for someone who has some money, business experience and imagination. Food is another area where a good idea is often enough to get a business going. A lot of successful businesses have been started in kitchens.

[Ronnie Roach]

33. What about this idea?

Workers in factory who are about lose their jobs because their company is going to relocate in some 3rd world country for cheap labor, take over the factory and fire the bosses then continue production, then implement profit sharing? Oh....i'm sorry...it's been done befor. Never mind!

http://www.youtube.com/watch?v=-691KqcDttE