The Stock Market

I believe our stock market(s) is in desperate need of regulation to return it to what I believe it was originally intended to be which was a central marketplace individuals or institutions could go to purchase ownership shares in companies they believed would grow and prosper and thereby increase the value of their ownership and thus their personal wealth. The concept obviously involved a certain amount of risk and, to that degree, was, and still is, a gamble, but that simple concept has been allowed to expand to the point where the stock market is not much better, in many respects, than a gambling casino in Las Vegas.

There are four particular practices/things that need to be eliminated from the stock market. First, are derivatives. They are nebulous "things" related to financial instruments, but not really financial instruments themselves that are difficult for anyone to define but are the very things the Special Products Division of AIG got involved in that ruined our financial system. Investopedia.com defines a derivative as "A security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. Futures contracts, forward contracts, options and swaps are the most common types of derivatives. Derivatives are contracts and can be used as an underlying asset. There are even derivatives based on weather data, such as the amount of rain or the number of sunny days in a particular region. Derivatives are generally used as an instrument to hedge risk, but can also be used for speculative purposes. For example, a European investor purchasing shares of an American company off of an American exchange (using U.S. dollars to do so) would be exposed to exchange-rate risk while holding that stock. To hedge this risk, the investor could purchase currency futures to lock in a specified exchange rate for the future stock sale and currency conversion back into Euros." This kind of activity is too complicated and too risky to be allowed to continue in our stock market. Betting on when the weather or the Consumer Price Index will change is something that should be done in Las Vegas.

Second, are hedge funds. We don't need hedge funds. The very name sounds like something sneaky and hedge funds, for some reason, probably because they are only available to the very wealthy, are allowed to be much more aggressive (careless) than regular mutual funds. InvestorWords.com defines a hedge fund as "A fund, usually used by wealthy individuals and institutions, which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Hedge funds are exempt from many of the rules and regulations governing other mutual funds, which allows them to accomplish aggressive investing goals. They are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts, ranging anywhere from $250,000 to over $1 million. As with traditional mutual funds, investors in hedge funds pay a management fee; however, hedge funds also collect a percentage of the profits (usually 20%)." Some hedge funds were actually doing nothing more than betting on the collapse of markets or institutions. How is negative investing helpful to America's businesses and our economy? Hedge funds have to go.

Third, is the practice of selling short. Wikipedia define short selling or "shorting" as "the practice of selling a financial instrument that the seller does not own at the time of the sale. Short selling is done with the intent of later purchasing the financial instrument at a lower price. Short-sellers attempt to profit from an expected decline in the price of a financial instrument." On a very large scale, this is what many hedge funds were doing. I think, very simply, that this practice is ridiculous and has not place in our stock market.

Finally, there is the practice of buying on margin. Wikipedia defines Margin buying as "buying securities with cash borrowed from a broker, using other securities as collateral. This has the effect of magnifying any profit or loss made on the securities. The securities serve as collateral for the loan. The net value, i.e. the difference between the value of the securities and the loan, is initially equal to the amount of one's own cash used." I don't believe we need to allow this practice to continue in the stock market. If you want to borrow, go to a bank. Stock brokers should not be allowed to loan money to anyone, particularly to gamble with. This practice should be disallowed entirely.

In conclusion, I believe the stock market needs to go back to basics. It should exist only as a vehicle to help American businesses and their investors grow and prosper. It should not be a casino for the very wealthy or institutional investors to gamble away the county's and our company's future. The four practices/instruments I have mentioned above should simply be declared illegal and the stock market should return to a vehicle to help our economy flourish and prosper.

Contributions to Politicians are Ruining the Nation

I don't think I'm saying anything almost everyone doesn't already know but our country is currently being run by those who contribute to our politicians. The bigger the contributor the more he/she has to say about how things are run. It's bribery at the highest levels of our society and it's ruining the country. It panders to our politicians' perceived need for power and money and it influences their every action. Congress itself needs to pass legislation to stop it.

I think politicians should not be allowed to accept anything from anyone or any organization. I think the government should fund political campaigns. I think our politicians should be elected and, once elected, act based on their own personal beliefs. Our elected officials should be above reproach and should act and do according to what they believe to be the best for the country and not what's best for some special interest group that gave them a lot of money, a vacation, rides on corporate jets, or other gifts.

The current practices are not only bribery, which I believe to be illegal, but they provide a negative example to everyone in the country who looks at it as "if it's OK for our Congressmen and Senators to do it, it's OK for me to do it also." I'll just bet that Dan Blagojevich thinks what he has done is OK because everyone else is doing it too.

We need to stop this nonsense now!

Where Do They Get It From?

An item in a recent newspaper and again on the TV news the same day both talked about the alarming percentage of kids in school who have stolen from a store and cheated primarily by plagiarizing from the internet. Where do they get it from?

I don't think the answer is a simple one, but then again, maybe it is. I think it's a combination of a whole lot of things but it starts at home. With all of the parents in the home working, there is no one there to nurture, protect, teach, and guide when the kids get home from school. So the kids play video games or watch TV programs that glamorize crime, violence, infidelity, backstabbing, and all other forms of cheating. If they happen to read the newspaper or watch the TV news they get similar messages from politicians, movie stars, TV stars, music stars, and athletes getting caught doing all sorts of unsavory acts. And when the parents get home from work, about all they have energy for is having a quick meal and getting the kids off to bed. They simply don't have the time or energy to sit down with their kids and put all of that "bad stuff" into perspective and talk with them about what is right and what is wrong.

So, home is where it starts with Mom and Dad providing little to no guidance. But the manufactures of video games, the media in general, and even our politicians at the highest levels; and the music, movie, TV, and sports stars are providing terrible examples of moral and ethical behavior. The conclusion has to be then that the problem is societal. Until our children's parents, our national leaders, our media, and our sports organizations take more responsibility for their own actions and the actions of their family members, our kids will continue believing it's OK to steal from a store and that it's OK to cheat in school.

Who Are They?

Who are the folks we see on TV at the close of the daily stock market sessions that are clapping and smiling while they ceremoniously ring the bell that ends the day? I can understand the clapping and smiling when the markets have shown an increase. But when the Dow has tanked 450 points during the day, I'm not sure I understand the exuberance. I would, I think, when my portfolio has shrunk 6% in one day, prefer a somber ceremony that shows some respect for my loss.

I guess one could interpret the exuberance on a down day as ignorance of what has happened or just plain rudeness. Or maybe those people are hedge fund investors who have gambled that the market will decline and have just made a ton of money on other peoples' losses and their exuberance is a kind of "in your face" thing. Or, maybe, they're just stupid. Whatever they are, it just doesn't seem appropriate to be clapping and smiling when the markets have declined.

The Issues, No. 60 - Bailout the Automobile Industry?

If the automobile industry is truly important to the economic well being of the country then maybe the government should provide some sort of financial assistance to help it recover. The problem is that it's hard, as it has been hard in accepting that the government needed to bailout the financial industry, to agree that an industry that has know it was having difficulties for some years now and didn't have a clue about how to compete with the foreign auto makers now needs our government to step in and save it. For those that believe in a free market economy, I think the emotional solution is that the industry should be allowed to fail because it did not create the demand for its products that it needed in order to survive.

The problem with not having our own automobile industry, however, could be quite costly, not only to our economy, but to our national defense as well. Aside from the fact that a failed auto industry would mean a tremendous loss of jobs, if we don't produce our own automobiles, we could be held hostage economically by the countries that sell them to us. And very simply, if we don't produce our own military vehicles and the spare parts required to keep them operating, we may not be as prepared as we should be to protect ourselves. Therefore, the government, from a purely practical standpoint, needs to do something to help keep the industry alive.

Maybe we don't need three big companies producing a thousand different models of vehicles and maybe the industry should be pared back to something that is reasonable. But we do need to have an automobile industry in order to ensure support for our economy and for our national defense. We just can't become totally dependent upon other countries for our motor vehicle transportation needs.

The Issues, No. 59 - Unregulated Capitalism Doesn't Work

It should be very obvious to all of us that our capitalist economy, unregulated and/or deregulated, didn't work. I'm all for capitalism. I think capitalism the very best motivator for individual and corporate progress and wealth. But it obviously falls apart when left unattended due primarily to greed which encourages corporations and the men and women who run them to gamble recklessly and ruin it for the entire country.

We all know by now that the credit practices of the mortgage lenders and our banks and credit card companies are what has caused our economy to collapse. Also, we all should know by now that the only way to prevent similar incidents from happening in the future is for our government to proactively provide oversight into business and financial practices and,where there are signs of possible trouble, stop whatever it is that's going on before it gets out of hand. The bottom line is that our economy needs government oversight. Too bad if that is socialistic. It simply needs oversight regardless of what it's called.

One area that needs a whole lot of new regulation is the stock market. It is just appalling to me that individuals and institutions are allowed to do short selling. It is also appalling that hedge funds are legal. Then there is after market trading which is another practice that should be illegal. It is one thing for individuals to buy shares in companies they believe are going to be successful which should be the basic activity of the stock market. When it turns into a high finance gambling casino, very much slanted in favor of the institutional investors and the wealthy, it then becomes what should be considered criminal. So government needs to clean up the stock market while it's overhauling the financial industry.

We've simply got to have our government deeply involved in watching and regulating what's going on in our economy. If we don't, we'll continue to have problems like we are currently experiencing. I don't care whether you are a conservative Republican or a liberal Democrat and I don't care either whether government oversight and regulation are socialist or capitalist. What I care about is a sound and prosperous America and I think, from our recent experience, that our government needs to step up and take control.

The Issues, No. 58 - Now's Our Chance

Election Day is next Tuesday, November 4th. It is our chance to let our politicians, particularly those in Washington, know just what we think of the job they have been doing. It's our chance to give all 435 Congressmen, 35 Senators, and the Republican administration their report cards.

For many of us it will be a time when we want them to know we are very disappointed in Congress and what it has done. We have two wars going on, a collapse of the mortgage market, and the resulting collapse of the financial industry all of which Congress is, at least, partially responsible for. So for those of us that feel Congress has let us down, next Tuesday is an opportune time for us to "throw the bums out" and vote for everyone who is challenging an incumbent. Of course, if you are satisfied with what your people in congress have done, you should vote for them.

For many of us it will be the time when we can say we are not happy with the way President Bush and his Republican administration led the country. So we can vote for Barack Obama and throw the Republicans out of the Executive Branch of the government. And, of course, if we are satisfied with what President Bush and his Republican administration has done, we should vote for John McCain.

The most important thing is that next Tuesday we vote. Maybe the most important responsibility we have as American citizens is to vote. It is our one opportunity every time there is an election to let the politicians who are up for election know what we think of their performance and our opportunity to get rid of those that aren't cutting it and replace them with those that might cut it. So, if you pass that opportunity up, you really have no business complaining about what you get. If you vote, at least you'll be able to say, "I tried". So, don't blow it! Get out there next Tuesday and vote.