Posted on 11/25/2010 5:48:59 AM PST by MeneMeneTekelUpharsin
Just read about how the Randlords in South Africa concentrated ownership of goldmining and diamond mining at the expense of those with small lucrative holdings. And, interestingly, it was done on the London stock exchange.
I’m onto something that was common knowledge and self-policing in the corporate world just a few short decades ago. It’s in their interest to do so.
The rise of the mercenary CEO combined with the invasion of the Wharton MBA, combined with the seemingly bottomless capital inflows from mutual funds have completely distorted the system, allowing and even appearing to encourage a lot of dirty dealing. It continued so long as the overall trend was upward. It’s not anymore, and the dirt’s about to be swept out from under the rug.
People have been too trusting, and if there’s ever a situation where trust alone is insufficient, it’s wherever there are large sums of money and decisions to be made as to the disposition of it, whether that’s a will, a church, a business, bank or brokerage.
People are going to be absolutely furious if the plain truth is ever laid bare.
Right. If I recall correctly, back in the 1950’s the pay ratio of the average company CEO to the average employee was something like 40 to 1. And that was self-policing.
Now the ratio is something like 2000 to 1.
I don’t think that it can be argued that CEO’s are 50 times more productive today. But it can be argued that they are 50 times greedier.
There have always been ruthless large players and allowing them unfettered free reign will serve their interests, not the people as a whole.
We had reasonable financial regulations borne of hard knocks, but abandoned them in a burst of hubris, dazzled by dollar signs.
Lessons should be getting learned anew, and will be eventually, but I see little sign of it outside of productive individuals and small businesses hunkering down.
“If capital markets are seen to be corrupt then capital markets will stop serving their purpose. . .”
The stock exchanges have become casinos for short term speculation, not centers for raising capital to finance long term investments in productive assets. One hundred years ago the equity markets were financing 20 year investments in factories, ships, and railroads. Today computer programs drive security trading allowing traders to skim billions of investment dollars out of pension funds and the 401K’s of average citizens. Stock churning by computer programs does nothing to improve the wealth of the country although it does make many of the partners at Goldman Sachs multimillionaires.
“If capital markets are seen to be corrupt then capital markets will stop serving their purpose. . .”
The stock exchanges have become casinos for short term speculation, not centers for raising capital to finance long term investments in productive assets. One hundred years ago the equity markets were financing 20 year investments in factories, ships, and railroads. Today computer programs drive security trading allowing traders to skim billions of investment dollars out of pension funds and the 401K’s of average citizens. Stock churning by computer programs does nothing to improve the wealth of the country although it does make many of the partners at Goldman Sachs multimillionaires.
“For the insiders to buy anything, someone else has to sell it. The poor schmuck that didn’t have that inside information sure as hell lost a bunch by selling at the lower price.”
But I’m trying to understand the moral problem. He didn’t have the information but the information is real, not false.
Imagine someone sold a piece of wood for $1. He doesn’t know what to do with it but you have a pretty good idea that you won’t share with anyone else. You decide to build something worth $1,000,000 out of that piece of wood. You have an information advantage that the other guy didn’t have. Isn’t that the same as insider trading?
When the focus shifted to “shareholder value” alone, the shenanigans began in earnest. There are situations wherein moves calculated solely to drive up share price actually degrade the longterm prospects of the corporation. Look to a local example near and dear to me, once quite the phenom and now dealing with the aftermath, Krispy Kreme. There are numerous other examples.
No, that’s called value added. Big difference.
And the steel mills, international telegraphy and oil production and refineries, and automobiles.
I know they wouldn’t because I wouldn’t invest in such a market. What idiot would?
I think what you’re asking is this: suppose that the product in my privious post really is ready for market. Then what’s the harm in insider trading in that case?
No real lasting harm, in that case. But the problem is that “ready for market” is usually subjective. And if there were insider money to be made, an insider’s judgement could become very clouded.
The damage that could be done to society is just too great. When folks no longer trust the market, new companies will not be able to offer stock. And shareholders in older companies will see a decline in their net worth, for no good reason.
Civil penalties alone will not stop insider trading. The temptation is too great. Criminal sanctions are necessary.
And as a semi-libertarian, I say that reluctantly.
No, more like the insider knows that the piece of wood will be worth 1000X tomorrow morning because that is when a major ban on foreign lumber is going to be announced. Now the insider isn't going to do a freaking thing with all that lumber, he will sell it in the market the next day at the 1000-X inflated price.
THAT is how insider trading works.
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