With all the talk about the impending fall over the "fiscal cliff" (brought to you by the Congress and the US Financial Establishment) I've been thinking about how I was brought up .... you know; thrift, saving, careful purchases, etc. I never recalled the use of the term "fiduciary responsibility for shareholder equity." A company made something, they made a modest profit (5-7 % wasn't unheard of and was considered pretty good), reinvested profit in research and development, paid decent wages and just maybe paid a small dividend to stockholders. Hell, for years GM stock was considered safer than a savings account. Think about it, the US Auto industry began its descent when the finance guys took over from the car guys.
One thing I always believed was that "investment" was just that. It wasn't speculation or gambling. Sure I lost money in some companies, and made some in others; but I wasn't the "in 'n out" investor.
Now, our system of investment is nothing more than a bet .... and the house always wins (even when they lose).
The portion of our economy that is concerned with making "deals" as opposed to making "things" has grown totally out of proportion with the value it adds to the economy, and many of the "instruments" are totally undecipherable to the average investor.
Now even the banks have entered the fray (with your money). I think this would be a pretty easy way to put a stop to it. Another way would be to eliminate the Capital Gains Tax. NO, NO, not what you think ......... Make it a graduated repeal - 50% tax on assets held one year or less, and a 10% reduction for each year thereafter. This is probably too simple, but it would certainly cut down on speculation, Another means would be a minute tax (say .001%) on every transaction.
I certainly don't have the answers, but we need to do something before it becomes a question of running out of rope or lampposts.
Right now the capital gains tax is your income tax bracket for assets held for one year or less (e.g., 35% right now if you're in the top bracket) and 15% for assets held for more than a year. But that doesn't seem to be providing sufficient incentive to buy and hold for the long term. Furthermore, the definition of "capital gains" is whack. As an engineer in the Silicon Valley, I know a fair number of people who got stock options for their startup at a fairly low strike price when the startup had no product and no sales and was basically worthless, and then exercised those options when their startup IPO'ed. They then had to pay capital gains tax on the difference between the strike price and the IPO price, even if the stock was Pets.com and became worthless within the six months "quiet period" before they were allowed by IPO rules to sell their stock.
ReplyDeleteThe rules are rigged against the little guy, is the problem. Until you fix that, no amount of trying to fix it so the big guys act right is going to help the little guy.
I agree wit' ya Tux .......
DeleteThe majority of today's economic activity seems to be "motion" as opposed to "progress"