After all, as soon as one initial stock or bond investor decides she wants (needs) to swap the revenue stream you immediately have two-thirds of a "secondary market" right there. The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
Are not stock markets part of those industries? You can't be me, I'm taken
Such a tax on transactions would slow markets down and also keeping your value in one place for longer will become more attractive.
The problem with this is that the standard Anglo Disease answer to a squeeze on margins would be to go for greater volumes and thus increase volatility.
'Hang the buggers' may at some point become cost effective. You can't be me, I'm taken
How good regulation will look like is the difficult task...
The only "good" part of it is the primary market, but there, as I pointed out only in limited cases and in the context of the whole economy only a very marginal asset. There are lots of good (and also big) companies out there which never listed on the stock exchange (think of most of the German Mittelstand or German companies like Bosch and Aldi).
Getting rid of the stock market is not going to be easy, that was my rambling at the end how already listed companies could delist... But the government could play a role at least curtailing many of the the sick side-effects of stock markets (essentially all hedge fund and investment banking activity). Banning naked short-selling, high frequency trading and instituting a tobin like tax of e.g. 1 cent per share trade would go a long way. Forcing shareholders to hold a stock for a certain minimum time period might also produce some positive side effects...
Essentially, there are a lot of questions which need to be answered. My point at first was only to say that stock markets are practically useless for the economy. But just like the atomic bomb a the stock market cannot just be "un-invented"...
Also, you seem to be treating markets and exchanges as synonymous. SME's (and shares in them) get bought and sold every day - just not via exchanges. The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
Your point about the difference between markets in general and stock exchanges is a good one. thanks. My main gripe is with stock exchanges because they made all the shenanigans of the past 20 years possible. By commoditising the selling and buying of company fractions so easy a whole entire industry has developed which parasticially feeds on these transcations and in many ways turns the whole market into a big Ponzi scheme.
Forcing all corporations to be privately held corporations would be a big move with a lot of unintended consequences. And the more wrenching the move, first, the greater the likelihood that efforts invested into mobilizing to achieve it will be for naught, and second, the greater the risk that the unintended consequences will include massively malignant ones.
Saying it explicitly, the proposal is either to force owners of corporations to remain owners of the corporation until they die or the corporation goes bankrupt is not, or else to make some cosmetic change to how stocks are traded with no real major impacts.
If the former, why not just propose abolishing open-ended charters and require charters to be renewed every fourteen years? That would allow corporations to be brought to heel by binding them with new charter terms, and that would not be anywhere near as massive an institutional change as abolishing publicly traded corporations.
And if the latter, why bother? I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
This permits a company to repurchase half its shares plus one and then have an internal majority on its board - for all important purposes effectively removing it from the stock market.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Boards operations also to be transparent except when discussing trade secrets. It could do all its work over the internet, and 'everyone' could watch. fairleft
At any rate, I am unconvinced that the proper way to regulate corporations is to place political appointees on their boards. Firstly because I am not convinced that the power of board members who are not intimately familiar with the actual operations of the firm (read: Used to work in the production arm of the firm) to govern the firm is greater than the power that the firm exercises on outsiders on its board. And secondly because if the company requires that level of direct control, there is no good reason not to simply nationalise the company in question outright.
Similarly, creditors have no business being on the board, any more than a supplier of heavy machinery does. If creditors have an interest in managing corporate operations that is even remotely comparable to that of the employees, it is because the company is gearing too heavily. In that case, the creditors have not exercised due diligence. Creditors who do not exercise due diligence should be told to take a long walk off a short pier, not rewarded with operational control.
Learning from the Yugoslav 'worker-self-managed corporations' experience, interest groups within the board of directors will find some matters much more vital than others, and all will not want to or be capable of participatory management of all aspects of firm affairs, especially the everyday and short-term-planning aspects. That doesn't mean they should not be included in the firm's commanding heights (the board of directors). Again based on the Yugoslav experience, no one should expect most workers to be interested in long-range corporate strategy, or marketing strategy, or a firm's financial or operational details. But workers damn well will be interested in everyone's salaries and compensation, and in whether a firm will hire new workers or offer more overtime (workers tending to strongly prefer the latter, to the detriment of employment rates). Political representatives also shouldn't be expected to be interested in, and you wouldn't want them to be, in the details of operations or finance (except perhaps wanting banking to be local), but they'd want the firm to increase employment, and work productively with local high schools and training institutes. What would happen is horse-trading, and exchange for rubber-stamping some decisions by the experts (which is what an efficient society would want), political and worker representatives, and creditors, would get concessions on matters that matter a great deal to them. And all groups will be keenly involved/interested when a new CEO is being selected. Anyway, that's how I would picture the operations of a new corproate brain.
The above at least seems roughly how it worked in Yugoslavia's simpler version thereof: the managers were given sway to 'do their thing', but the workers retained power, and used that on matters that were vital to them. The problem in Yugoslavia is that that became disfunctional, since workers severely restricted the firm's capacity to generate new employment, a vital function of any economic system. The solution is to balance the wider community's needs against the workers' needs: that's why community/political representatives are necessary. But expect them to take a back seat to the experts most of the time. fairleft
The corporation should plan going forward with the intertion of paying off its debts.
Yes. If you do not believe that they are already doing this, then you should not lend to them in the first place. In fact, this is another excellent reason to not include creditors on the board: Inclusion of creditors would give them an incentive to attempt to persuade corporations to not retire their debts.
The problem in Yugoslavia is that that became disfunctional, since workers severely restricted the firm's capacity to generate new employment,
But maintaining full employment is not the purpose or responsibility of individual firms. The sovereign is the only planning unit that has sufficient scope, information and power to reliably serve as employer of last resort.
But maintaining full employment is not the purpose or responsibility of individual firms.
The democratic society reforming firm 'desires' in socially productive directions is the essence of what I'm talking about, but that doesn't mean giving 'responsibility' for social goals over to the firm, and it doesn't mean firm purpose would be 'full employment', since 'firm purpose' is always very complex. Corporations should be, or can be, one of the tools society uses to satisfy social needs.
What you want is for firms to decide 'naturally' in favor of expanding employment when that makes sense for the society at large. Firms' decision-making was skewed against that in a socially counterproductive way in Yugoslavia in the worker-self-managed firms. Not that that's the only thing that matters to a society, but it is a vital matter. And not that worker-self-managed firms were not a good thing in other ways. fairleft
I disagree! Some companies can very well be run at a high rate of indebtness (leverage), given that its earning stream is very stable, and the owners are well capitalised (so they can step up in case of a rights issue brought on by a crisis). Examples of companies like this are real estate and tobacco companies.
Again based on the Yugoslav experience
Yeah, and the economy of Yugoslavia was a shining beacon to the rest of the world, wasn't it?
I think our current model works well. The owners name the members of the board, and then there's a union representative. What we should change is make board members far more personally legally resonsible in case of fraud or mismanagement of the company, ie big fines and long prison terms. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Fraud/mismanagement liability for board members, who represent shareholders, besides boosting board member liability insurance sales, further increases the weight of shareholder interests in firm decision-making. And, of course, I think society might want more 'mismanagement from the shareholder perspective' not less. Anyway, the external 'stick' of legal action is clumsy and easily corrupted into being ineffectual, compared to changing internal motivations. fairleft
Despite all the deleterious shenanigans a stock market provides the best way for an investor to get out of an investment. As you rightly point-out, "as soon as one initial stock or bond investor decides she wants (needs) to swap the revenue stream you immediately have two-thirds of a "secondary market."
A properly (honestly) run stock market with proper regulation and taxation provides a Public Good.
Institutional investers holding stocks and voting against malignant corporate policies are one of the few points of leverage civil society has on private corporate governments, and shutting down secondary markets implies that most institutional investers can no longer hold stocks. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Say what you will about the CEO of a steelworking company, he's likely to understand the steel business a lot better than the CEO of a pension fund.
And of course, its not always the case that the guy who was Chief Financial Officer of the Gap who is now CEO of a Steel Company actually does know more about the steel business than an institutional investor ... it certainly would have been true back in the day that CEO's primarily came up from operations, now that they primarily come up through finance, its not always true.
But more importantly, sure, hopefully even if the CEO started out not knowing a lot about the industry the business is in, they quickly come up to speed ... the incentive that we have set up for CEO's is to chase the quick bucks right away. Senior management blaming "the markets" are blaming the fact that they are chasing short term stock price increases ... and the right to chase short term price increases is what they were defending when there was a threat that the cost of stock options would be as such in the profit and loss statement in the 1990's and the corporate jets descended on Washington DC. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
Really, doesn't everyone know this? I read of it (for abouth the thosandth time) as late as a few days ago, in a book I just bought. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Consider the fair value of the following 50:50 bets for stock currently at $50 to someone with options to buy stock at $48, maturing sometime in the next three months (values times 0.5 chance of occurring):
$48:$52, incremental value -$1+$1=+$0 $40:$60, incremental value -$1+$5=+$4 $30:$70, incremental value -$1+$10=+$9 ... and so on.
If the stock option is out of the money, it only makes the incentive to pursue bigger win / bigger loss bets stronger.
Of course if the stock price goes down, someone holding the stock does not recover until it returns to its original level.
By contrast, someone paid in short term stock options will have the stock options issued relative to current market price, so if last quarter they lost, they restart at a lower level and continue gambling from there.
Payment in short maturity stock options involves substantially higher moral hazard than payment in stock or in long maturity options. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
If you want to have bonuses for corporate officers, you could just give them an extra sack of cash. If they believe in the company they can use that money to buy shares, or even options, in it.
Alternatively one could issue shares to them, which would be held in an escrow account for 5-10 years after which they can be sold. Peak oil is not an energy crisis. It is a liquid fuel crisis.
