Thursday, March 12, 2009
The History of Stocks
Back in the waning days of the Clinton Administration, when the country had budget surpluses and living was good, there were Reaganists who wanted us to believe that what we were actually looking at were the really, really long-term ramifications of Reaganomics. That’s something to think about as we listen to all the right wing bitching that Obama hasn’t delivered on his promises of change. The biggest change that I’ve noticed is in this fun $410 billion spending bill that Obama signed yesterday. It’s “filled” with earmarks* and yet another example of big, wasteful government spending. The Republican opponents emphasize throughout that there are almost 9,000 earmarks and don’t seem to reach in to any substantive explanation of what the earmarks are, how their bad, or how the minority Republican Party managed to get nearly half of those earmarks on to the bill in the first place (including the priceless clip from Lindsay Graham [R-SC], where when confronted by a $950,000 earmark for a convention center in Myrtle Beach he said they’d take that earmark off, too. And put it on to the next omnibus spending bill. For the record, given a choice between a convention center in Myrtle Beach and getting rid of a plague o’ locusts o’er the land, I’ll drop the convention center, thankyouverymuch). Explain to me again where the hypocrisy is… Meanwhile, we’ve now had Rick Santelli call for a new Boston Tea Party (or, um, something) and apparently the talking heads over at FOX News are turning to their new holy book: Atlas Shrugged. This should be good for a laugh. The call for a new Tea Party amuses the hell out of me. It’s right out of the fundagelical Christianity symbolism for symbolism’s sake playbook. Because, see, we’re being unfairly taxed by the government, just like the colonists were back in the day. So in order to make the point that we’re being taxed without representation, we need to, um, go throw a box of Bigelow off of Navy Pier. Two things: 1. The concept of “No taxation without representation” comes from the fact that the colonists didn’t have a voice with the king. So if ol’ King George needed money to fund a war against France and didn’t want to piss off actual Britons, what did he do? He raised taxes in the colonies because nobody important would care. 2. Tea was chosen for an extremely specific purpose. The thirteen colonies, being a British venture, drank a lot of tea. North America is not exactly conducive to tea growing, so naturally it came from somewhere else, meaning it was a lucrative crop to tax. When the tea got to the docks in New England, merchants purchased it and, in the process, paid a customs fee. The tea was then stamped (so if you run across the term Stamp Act, it’s not talking about charging extra for postage, it’s about customs fees) to indicate the fees had been paid. This meant that when Sam Adams and his merry men snuck aboard the ship to throw the tea overboard they were denying the British government a hell of a lot of money in taxes. It was not a purely symbolic move by any stretch of the imagination. I have representation in Congress. In fact, I’m pretty sure that my representative in Congress is the one I voted for back a few months ago. Although that could be wrong, since I think I moved a Congressional District in October but kept my old address for a little longer so I could vote. Either way, it’s extremely likely that my Congresscritter is who I would have voted for anyway. But you don’t care. Either way, “lack of representation” is not the same thing as “representation by someone with whom I disagree.”** This is a principle that certain people can’t quite seem to understand. They hate one party, so they start calling for revolution as soon as that party is in power. It’s counter-democratic at its core. Meanwhile, we’re now supposed to believe that Ayn Rand was some sort of prophet, and that the only response to the current state of the economy is for all of the deserving kings of industry to run off and form their own country, where merit will be rewarded and the rest of us can just fester and rot. I love the concept of the meritocracy. It sounds so great and, quite frankly, should be the way we do things. China, in fact, figured this out something like three thousand years ago when it created the first professional bureaucracy based on a civil service exam. The question in any meritocracy is, “Who defines merit?” This is where the stupidity of the Randites comes shining through, since they take on the Puritan fallacy that wealth = a sign of god’s grace and twist it to say that wealth = merit. This, for the record, has given me a fantastic idea for a short story. Look for “Atlas Tripped” to appear on The Repository once I get around to writing it. It’ll be in the blog feed on the right hand column… Yet the thing that we tend to learn is that wealth does not, in fact, count as a virtue. That’s why the captains of industry from the Industrial Revolution are now known by the catch-all term “Robber Barons.” We look back on the underhanded business tactics with which guys like Carnegie and Rockefeller and any number of others ruthlessly eliminated competition and exploited workers with contempt. We saw it again a few years back with the Enron scandal. The tactics were different with Enron and heads did roll, but in the end it was a lot of innocent workers who took it in the pants. We’re seeing it again with places like AIG and Bear Stearns right now. Shameless greed drives a company to cook the books. Then, as we’ve seen so many times, the people responsible for the sham declare how great they are, take millions of dollars as their not at all justified salary, then disappear whenever things fall apart while others take the pain. This isn’t merit. It’s absolutely stupid to say that these modern day robber barons have money and influence because they deserve it. The problem is that the stock market doesn’t actually do what it’s supposed to do. And that fact is what’s causing the biggest problem. Say I start a restaurant. It’s extremely popular and people start driving in from the next town over on a regular basis for dinner. I decide to take advantage of this popularity by opening a franchise in the next town. Problem is, I don’t have the capital. So I bring on a friend who does have the money. My restaurant has now become a partnership. The new franchise only brings more business and more business brings a chance for even more expansion. Again, though, I don’t have the capital and neither does my partner. So we bring on more partners, promising them a share in the restaurant and, therefore, a share of the profits. As long as I or my partners are in charge the restaurant’s ultimate success or failure is based on the quality of the idea and its execution. The problem is that it’s not always possible for me and all of the people I know to come up with the money. This is what led to the creation of the stock market. And, when it gets right down to it, the stock market was a brilliant idea. I don’t have the money. My friends don’t have the money, but the money is out there, even if it’s a lot of tiny amounts. It’s easier to find a thousand people willing to buy $100 worth of stock than it is to find one person with $100,000 to loan. Unfortunately, when my company goes public the power shifts. I’m no longer beholden primarily to the quality of the idea or my customers, but my shareholders. Those thousand people probably aren’t investing in my idea. They’re buying my stocks because somebody says they’re going to make a hell of a lot of money, either through dividends or the whole buy low, sell high thing. Again, this isn’t always a problem. It’s why the smart money isn’t on day trading and trying to make a million in stocks tomorrow, but to invest slowly over time with the idea that you’ll make a good return eventually. Stock bubbles come when this idea is ignored and people go hog wild expecting a shortcut to obscene wealth. This, for those who are wondering, is what brought us to Black Friday and the Great Depression. So now I have to convince shareholders to buy. And as the stock value goes up, I have to convince more people to part with more money than ever before. If I can’t sell my stock, I can’t keep the company going. And as long as the expectations remain insanely overblown, the lengths I’ll have to go to in order to meet those expectations will increase. Eventually the quality of the product will be lost in the shuffle. Ironically, if I blow the quality of my restaurant in an attempt to mollify shareholders, people will stop coming, the restaurant will fail, and the shareholders will lose their money in the end. Just in case anyone out there is wondering, we’re seeing exactly the results of that stupidity right now. And it’s not just the greedily short-sighted who are losing it, but the people who are using the investments in the way they were intended. The poor guy who’s been feeding in to his 401(k) for twenty years with the intention of retiring and now has nothing does not deserve to be fucked over by the jackasses who are trying to game the system. The people at Enron who lost their retirement funds and jobs got fucked over by the jackasses who tried to game the system. Bear Stearns, Lehman Brothers, AIG, all of them fucked over their clients, their employees, their shareholders, and our entire country. The self-described meritocracy should go start their own fucking country. They’ll starve to death in a week because they’re pathetic, useless, self-important jackasses who wouldn’t raise a finger to help anyone and don’t deserve our help when they’re standing there like the rich man asking Lazarus to bring him a drop of water. Fuck ‘em. They’ve already fucked us. However, Ayn Randism aside, some people do get it that we’re all in this together. It’s this sort of thing that will get us through the mess. Let’s start focusing on the good. Retribution might be nice, but revenge doesn’t solve the underlying problem. Oh, and the next time you hear someone say that FDR was a moron and it's somehow the New Deal's fault or it failed, or whatever, there's something to keep in mind. The FDIC is almost out of money right now. The reason it's almost out of money is because they've been quietly going around bailing out banks in the middle of the night. This has nothing to do with the stimulus package, either. Banks much smaller than Citigroup are failing left and right and the FDIC is propping them up to keep us from having a run on the banks like the one that kicked off the Great Depression. That's why FDR made the FDIC a part of the New Deal. We live in a society where the system of wealth is built on our faith in the monetary system. The intent of the federal government in insuring the deposits in banks was to make sure that faith in the system is propped up. ------------------------------ *Approximately 9,000, amounting to less than 2% of the total bill. Many of which aren’t actually pork, but extremely useful things. It just makes a way better sound byte to say, “The Federal Government is spending a million bucks on Mormon Crickets, what pork!” than to say, “The Federal Government is spending a million bucks on figuring out ways to combat a plague o’ locusts o’er the lands that shows up every once in a while and destroys a significantly larger dollar amount worth of crops.” One of those statements sells the idea that the spending is a massive, unaccountable waste. The other…not so much. **This, by the way, is one of the limitations of the two party system. If I were writing up a new Constitution I’d go for a Parliamentary system instead of a winner-take-all vote to decide. Our current system encourages the creation of a two-party structure, which in turn encourages the black-and-white thinking we’ve succumbed to. The Republicans don’t represent me at all right now, but I can’t say the Democrats do, either. This is exactly the sort of reason that Jefferson suggested a new Constitution every generation. A document written based on the political realities of 220 years ago cannot be expected to cover the political realities of today, especially when you consider just how different the Republic is now from what it was in 1789. More people are enfranchised and, therefore, need a voice and the issues we face are much more varied than federation v. confederation, which was basically what the first eighty or so years of conflict in America was about. That’s why the first parties were the Federalists and the Anti-Federalists (which quickly morphed to the Democratic Republicans).