Because Reagan put a Wall Street power broker in charge of the SEC. They changed the rule that would give executives liability for manipulating stock prices with buybacks. Look at what companies have been doing since then: the answer is stock buybacks. Tens of trillions of dollars worth of them. Also notice when they buy the stocks: when prices are high (because buying high and selling low is just good business). And there’s the sweet ancillary benefit of increasing stock price by removing shares from the market. I’m working mostly from memory but there’s been a ton written about this in recent years.
1 Like
The Spock market is basically just a tool to extract short-term rents. I mean that’s almost entirely what it’s used for. Do people actually believe that shit about it being for raising capital? LOL. Park the cash that’s doing absolutely nothing offshore and wait for the next sweet tax holiday so you can pay yourself I mean the shareholders.SPONKS ARE UP! You beat that target on the quarterly call time for another raise.
2 Likes
Several good things about markets I would like to point out
Public markets actually do a lot to improve transparency and accountability of large enterprises, through reporting and disclosure requirements and activist investing. Even the effectiveness of things like boycotts is a increased for a publicly traded company vs. something like Koch enterprises.
Through the wealth effect, enabling fractional ownership of large enterprises by small investors actually creates economic growth by stimulating spending and economic activity as asset prices rise.
All the speculative action in the markets that you don’t like is actually very forward looking and predictive, it gives policy makers and the public information which enables a quicker reaction to crises, to the degree that they try to set up prediction markets for other random things.
It gives people who want to save for retirement a vehicle to hedge their savings against inflation.
Only going to address this, as the rest are all garden-variety benefits of the stock market as classically defined, which I cheerfully grant exist. What I’m looking for is reasons to think that the Actually Existing Stock (and finance etc) Markets are a net good. Can you unpack what you’re saying a bit? What is the speculative action predictive of, exactly? Can you give me some examples of crises that have been reacted to faster as a result of speculative activity on the market?
Not sure if I would consider stock markets a net good, but I would certainly consider making them illegal a net bad. They’re much like casinos in that way.
Not sure I understand, so do you contend those benefits of the stock market as classically defined not exist in our real markets? I would disagree.
Regarding the predictive indicator thing. I think we would not have seen the same policy response and people really would not have understood the risks of the 2008 housing collapse until much later had the market not tanked the way it did.
Just trying to envision how 2008 would have played out without a market tanking, I think many people who weren’t personally losing their houses they will not think the foreclosure wave is a big deal, and Republicans are stuck talking about moral hazard and austerity until it is too late and the US is in the grip of a deflationary feedback loop that takes years to unwind. Instead you had Bush brining banking execs to the White House and admitting the US “this sucker could go down” and a general public fascination with the day to day declines in the Dow and S&P nailing home the seriousness of the crisis.
Oh I’m sure they exist. My point is that they exist even if the stock market functions only as a stock market, that is, if the market functions only as a means to raise capital and search for good investments based on market fundamentals etc. I don’t think they’re meaningfully added to (at least not without considerable downsides) when the market matures to be primarily a Keynesian Beauty Contest and I don’t think anything at all good comes from the market becoming some kind of god everything must be sacrificed to.
Regarding the predictive indicator thing. I think we would not have seen the same policy response and people really would not have understood the risks of the 2008 housing collapse until much later had the market not tanked the way it did.
OK — and I understand that ‘the stock market’ has a certain technical meaning and I may not have helped myself by using it — but this kind of makes it seem like one benefit of the markets is that they alert you to problems they caused.
After thinking more I realized maybe we are talking about different things. As defined, I think all stock markets are Spock markets, i.e., Lodden Thinks markets. Why wouldn’t they be? In fact, I’d define a pure stock market as a special case of the Spock market where all actors are rational and have (mostly complete) information. Simply parameterize the Spock market such that it simplifies to a stock market when all of the parameters for rationality, information, and moral hazard approach boundaries in the same way n*Beta(n,1) converges to Exp(1) as n → inf. That is obviously something that only exists in AnCap fever dreams, so I think the question is “How ‘Spocky’ can a market get before we realize significant negative externalities?”
And that is why I brought up 1982, because it seems like the modern inflection point. We drifted from (seemingly) sustainable levels of Spockiness to maximum levels where owners extract every subatomic particle of surplus from capital through market manipulation. I suppose you could make similar arguments about 1929 but I have strong recency bias and the stakes are higher now. As I said before, a lot has been written about this in recent years:
In terms of shock markets, I think when the parameters drift toward higher Spockiness, shocks become more dissociated from reality. Although real-world events might trigger the next shock, it’s mostly a butterfly effect, and the collapse will largely (entirely?) be due to self-imposed structural deficiencies in the Spock market itself. That won’t stop people from attempting to tie the Spock market to economic reality through narratives.
I am happy to talk about the stock market endlessly, but I don’t really understand the conversation that’s happening. I think the focus on the 2008 financial crisis is a little misplaced, because massive debt/leverage was arguably the reason for it, not because stock prices dropped.
I mean, no one gives a shit if Pets.com or Webvan or Peapod or Gamestop or AMC goes bankrupt. Stock prices go up and down–sometimes violently–all the time without causing massive economic suffering. But when people/firms are extremely leveraged and their assets decline in value, they go busto and them going busto can lead to a chain reaction to other levered firms with investments in those now-busto entities.
But the whole notion of “toxic assets” or whatever was stupid - banks didn’t go busto because they owned a bunch of bad assets. Those assets couldn’t actually contaminate good assets. They went busto because they had too much debt.
Anyway, like I said I’m happy to talk about the stock market and advocate for its existence (I’m in favor!), but I don’t think I really understand the arguments being made against it.
Like I say, I may have hamstrung myself by referring to ‘the stock market’. I don’t just mean the stock market. I mean what people mean when they talk about ‘the markets’.
Yes! It seems like a ratchet. Line goes down, everyone’s fucked, line goes up, we get… what, exactly? Something, I’m sure.
But…that’s very different. If you’re including the stuff that caused the 2008 financial crisis in your “the markets” construction, frankly that doesn’t have anything to do with the stock market in particular at all. There was a lot of stuff that happened to cause the financial panic, which was a result of massive failures of government regulation. Arising mostly because both parties didn’t really give a shit about letting Wall Street do whatever the hell it wanted. That’s a trend that started with Carter and accelerated with Clinton. The Democrats used to be a check on Wall Street, but with the rise of the New Democrats in the 80s, regulators were increasingly a joke. And Republicans moved further towards Wall Street to try to differentiate themselves from the increasingly pro-business Democrats. So that’s what I mean when I say that the regulatory and law enforcement lapse was a political failure. It certainly wasn’t inevitable and it didn’t have anything to do with companies being publicly traded.
It doesn’t have anything directly to do with it, sure. But didn’t these other markets emerge as offshoots of stock markets, or weren’t they consciously modeled after them?
And I mean, OK, it was a failure of regulation. What caused the failure? ‘Regulation’ doesn’t just break. I have an explanation in the form of regulatory capture and associated ills. You seem to agree that that’s the explanation, but to maintain that those are avoidable. How are they to be avoided?
No. There’s nothing inherently wrong with a mortgage backed security. It’s just a bunch of debt bundled together to form a tradeable bond. The only tricky part is keeping the ownership of the mortgages clear and documented. And that’s what the investment bank does. The harm isn’t those mortgages becoming traded or financialized. The harm is when every level of that financialization is operating as a fraud. The mortgages are fraudulently obtained (fraud perpetrated by the companies, not the unqualified people, but guess who gets blamed), the investment banks then package the garbage together knowing it’s garbage and then fraudulently obtain bond ratings on the resulting bond, and then pass the bonds off to sucker pension funds.
How can you avoid that? By having regulators who aren’t incompetent, toothless clowns. And by punishing fraud that the regulators miss by throwing the fraudsters in federal prison and bankrupting the companies that have to be bailed out by the government. Also known as Fail, Bail, and Jail. Easy and also fun. And a political problem.
I’m not trying to be snide, but you’re saying that you avoid that by avoiding it. How did it happen, and what would need to have gone differently for it not to have happened?
I already told you! The Democrats decided to become Republicans and that shifted the Republicans even closer to big business. How do you fix that? You elect politicians who aren’t corrupt, wine cave dwelling pieces of shit.
I’ll read the Atlantic thing tomorrow, but (again, not being snide) now you’re telling me that it happened by happening.
Well shit, man. The reasons why it happened are complicated. That’s why I linked to a 2000 word article talking about that.
1 Like
[quote=“SenorKeeed, post:75, topic:3921, full:true”]How can you avoid that? By having regulators who aren’t incompetent, toothless clowns. And by punishing fraud that the regulators miss by throwing the fraudsters in federal prison and bankrupting the companies that have to be bailed out by the government. Also known as Fail, Bail, and Jail. Easy and also fun. And a political problem.
[/quote]
I can remember being in high school in the 70s and learning about FDIC deposit insurance.
I never forgot when my teacher said. "On the rare occasions nowadays when banks fail, the customers’ deposits are covered, and usually at least few people go to jail