Could Credit Unions Be the Solution to Economic Stability?

[russ_watters]

If no one is allowed to sell their shares there is less risk to a company's working capital, given the fact that a listed company currently has no control over the value of its shares and therefore its access to funding to maintain its operations.

Also:

You do understand that once the company sells the shares, they no longer have any impact on the company's working capital, right? All that panic buying and selling by investors changes nothing about a company's cash holdings. Outstanding shares do not provide a company with capital!

 

[Drakkith]

Also:

You do understand that once the company sells the shares, they no longer have any impact on the company's working capital, right? All that panic buying and selling by investors changes nothing about a company's cash holdings. Outstanding shares do not provide a company with capital!

Just so I am clear with what you mean, the company itself as a whole isn't gaining any money because of buying and selling shares, it is only the individuals who own the shares that make or lose money correct?

 

[WhoWee]

Just so I am clear with what you mean, the company itself as a whole isn't gaining any money because of buying and selling shares, it is only the individuals who own the shares that make or lose money correct?

When the shares are first issued by the Company - the funds are retained by the Company. All trades between investors after that (based on the value - usually determined by company performance) are separate from the company.

Another way to look at it - an artist sells a painting and keeps the proceeds. The collector/buyer takes possession and ultimately sells it to another collector. The money exchanged between the 2 collectors is not shared by the artist - but the collective work of the artist impacts the value of the piece. The difference is the artist doesn't pay dividends to the collector(investor) as the Company might.

 

[Drakkith]

I see, thanks WhoWee!

 

[WhoWee]

If trading in company capital on the open market was banned, there could be no more boom and bust cycles caused by dramatic changes in fickle confidence, while an investor could still sell his shares in a company, but only for their real, book value and not for a fictional market price. If banks were no longer run for profit, there could be no more catastrophies caused by reckless profiteering in the banking community. If interest on loans, which is a major deterrent to enterprise and produces nothing of value, was banned, business would receive a huge boost. Finally, if a common global currency was established, the benefits to international trade would be enormous.

The only barrier to such changes is the popular delusion that trading in money can somehow make more money, when in fact such a trade is a rapacious parasite which feeds on the flesh of the real wealth-creating world of work and, by its nature, resists all efforts to treat or control it.

To get us back on topic - the result of your actions would be to eliminate incentives to invest - IMO. Why would an investor take a risk?

 

[Nev]

To get us back on topic - the result of your actions would be to eliminate incentives to invest - IMO. Why would an investor take a risk?

A share in potential profits, by way of dividends, should be sufficient incentive to invest in a company or new venture, as it already is for many shrewd investors, whether or not their investment succeeds.

 

[WhoWee]

A share in potential profits, by way of dividends, should be sufficient incentive to invest in a company or new venture, as it already is for many shrewd investors, whether or not their investment succeeds.

That would eliminate start ups - wouldn't it?

 

[daveb]

Since I work for a startup, I would say it doesn't eliminate them, but it would surely reduce the number of them. For example, startups that are R&D based (such as the one I work for) would probably still be around, since the potential payoffs for the investors would be larger for successful R&D (due to lack of or negligible initial competition). The ones that might not start at all would be those trying to capitalize on a growing or established market (since effective competition makes success more difficult).

 

[WhoWee]

Since I work for a startup, I would say it doesn't eliminate them, but it would surely reduce the number of them. For example, startups that are R&D based (such as the one I work for) would probably still be around, since the potential payoffs for the investors would be larger for successful R&D (due to lack of or negligible initial competition). The ones that might not start at all would be those trying to capitalize on a growing or established market (since effective competition makes success more difficult).

I should have clarified my point - that start up and growth companies often need to re-invest profits - not pay dividends - and attract investors because of share appreciation.

 

[daveb]

Well, since we don't have a device ready for commercial distribution, I can't speak about profits, and where they'll go, but you're right in that regard.

 

[Nev]

Also, the buying and selling of shares does NOT mean that a company has no funding. Profits from the business are the primary source of funding for companies. The owners of the company (The primary shareholders I mean) can use their shares to get more funding to expand or fund other projects by selling them, giving others a larger share of owership of the company in return for cash.

If the loss of confidence in a company due to market conditions has no impact on its ability to find funding from profits to maintain its operations, why is it that widespread contagion of such loss of confidence can frequently lead to a major down-turn in economic activity, if not as serious as the Wall Street Crash?

 

[WhoWee]

If the loss of confidence in a company due to market conditions has no impact on its ability to find funding from profits to maintain its operations, why is it that widespread contagion of such loss of confidence can frequently lead to a major down-turn in economic activity, if not as serious as the Wall Street Crash?

You seem to be changing the rules/conditions?

You first posted:
"Further to my earlier comments about capitalism in general, it seems to me we should never allow investors to sell on a whim for profit or from a sense of concern or panic, even if inviting share offers or the state of a company's finances are fraudulently engineered.

We all know how a flourishing company can be driven out of existence by the withdrawal of its working capital amid rumours of impending disaster-which is precisely what happened to many at the time of the Wall Street Crash. Of course stock exchanges, which only survive and make huge fortunes for some, by virtue of the right to sell for profit, would cease to exist in their present form."

 

[Drakkith]

If the loss of confidence in a company due to market conditions has no impact on its ability to find funding from profits to maintain its operations, why is it that widespread contagion of such loss of confidence can frequently lead to a major down-turn in economic activity, if not as serious as the Wall Street Crash?

I've read a few articles online, and from what I've read it takes a combination of events to cause something like a depression from a Stock Market crash. The thing is that the stock market is directly connected to the economy and the money supply. When the economy does bad it isn't the Stock Market to blame, it is the economy. The market merely reflects the economy.

I don't know all the details, so I hope someone can explain better than I can. I've only looked around at wikipedia and a few articles such as this one: http://www.amatecon.com/gd/gdcandc.html

 

[WhoWee]

I've read a few articles online, and from what I've read it takes a combination of events to cause something like a depression from a Stock Market crash. The thing is that the stock market is directly connected to the economy and the money supply. When the economy does bad it isn't the Stock Market to blame, it is the economy. The market merely reflects the economy.

I don't know all the details, so I hope someone can explain better than I can. I've only looked around at wikipedia and a few articles such as this one: http://www.amatecon.com/gd/gdcandc.html

The 1929 Crash was fueled by speculation and credit - it was a bubble. Much like our recent real estate bubble where people bought homes of ever increasing value with nothing down - investors in the late 1920's bought stock on broker credit - or margin.

 

[Drakkith]

The 1929 Crash was fueled by speculation and credit - it was a bubble. Much like our recent real estate bubble where people bought homes of ever increasing value with nothing down - investors in the late 1920's bought stock on broker credit - or margin.

Sure, but would ONLY that cause the economic problems? Just from some quick reading it seems vastly more complex than just that. Know any good links on the issue?

 

[WhoWee]

Sure, but would ONLY that cause the economic problems? Just from some quick reading it seems vastly more complex than just that. Know any good links on the issue?

I think one of the dangers in a highly speculative (leveraged investments also think derivatives) market is that capital is siphoned away from IPO's and bonds. Fresh capital is needed for growth.

 

[Drakkith]

I think one of the dangers in a highly speculative (leveraged investments also think derivatives) market is that capital is siphoned away from IPO's and bonds. Fresh capital is needed for growth.

I don't really know what any of that means lol.

 

[WhoWee]

Both Initial Public Offerings and the sale of bonds (debt instruments) inject cash directly into a company. As discussed earlier in this thread, when the shares of that company are trades between investors - the company doesn't receive any of the money.

When investors see a stock price increasing and borrow against the value of their portfolio to buy more shares - the investors now owe money on the "if/come". They have to sell the newly acquired shares in order to pay for their purchase and free the pledged shares.

When investors purchase derivatives - they don't own anything - basically a hedge bet (legal gambling) - and it's unregulated. It's not uncommon for a derivatives investor to have a very complex strategy in place - this requires large amounts of capital that are not available for direct investment in a growth or start-up company.

 

[Drakkith]

Ah ok, I see. Thanks Whowee.

 

[WhoWee]

Ah ok, I see. Thanks Whowee.

Sure. My point was there are a fixed amount of dollars available for direct investment. Anything that draws them away can slow growth.

When investors borrow money to make investments - they better be chasing sure bets. I've known people that took cash advances on credit cards to purchase a hot stock.

 

[Nev]

I've read a few articles online, and from what I've read it takes a combination of events to cause something like a depression from a Stock Market crash. The thing is that the stock market is directly connected to the economy and the money supply. When the economy does bad it isn't the Stock Market to blame, it is the economy. The market merely reflects the economy.

I accept that any problem affecting the global economy, such as sudden shortage of oil, can have a serious impact on the value of shares worldwide. But in any case, I see money, the means of exchange, as something totally different from a product produced by someone's labour for human consumption or use, which is the only way to create wealth, whereas the notion that trading in money can somehow make more money is simply fiction.

Of course there are some who gain from the trade, or it wouldn't exist, but I suggest that their winnings are far outweighed by the losses of others and the risks to the wider economy when such gambling falls on its head.

 

[WhoWee]

I accept that any problem affecting the global economy, such as sudden shortage of oil, can have a serious impact on the value of shares worldwide. But in any case, I see money, the means of exchange, as something totally different from a product produced by someone's labour for human consumption or use, which is the only way to create wealth, whereas the notion that trading in money can somehow make more money is simply fiction.

Of course there are some who gain from the trade, or it wouldn't exist, but I suggest that their winnings are far outweighed by the losses of others and the risks to the wider economy when such gambling falls on its head.

Are you now referring to currency trading?

 

[Nev]

Are you now referring to currency trading?

I'm sorry if I confused the issue over the exchange of money. Clearly it is involved in stock market transactions as well as the currency market and also in credit or loans from banks, which attract interest.

 

[WhoWee]

I'm sorry if I confused the issue over the exchange of money. Clearly it is involved in stock market transactions as well as the currency market and also in credit or loans from banks, which attract interest.

I would like to agree with you firmly on a narrow type of investments (yet an enormous and unregulated market) - the exchange of money in derivatives creates nothing - it is gambling.

 

[Nev]

As I have stated before, I am convinced it is unnecessy for interest on loans to be charged as an incentive for debts to be repaid. All business, as I have said before, is based on trust, whether a company does work for which it expects to be paid once the job is completed or one expects an item to be delivered when payment is made in advance to a reputable company. We know how reckless lending by banks for profit can cause havoc with the global economy, even their own survival, unfortunately at huge cost to the taxpayer. Once again, I suggest if banks worldwide were no longer able to charge interest, their operations funded by the state, I feel certain the cost to the community at large would be far outweighed by the advantages to both business and consumers, thereby leading to greater stability and potential for growth in the global economy. Meanwhile the risk of another banking crisis in Europe would recede, as countries with huge deficits would stand a far better chance of repaying their debts once the burden of crippling interest was removed. Of course huge vested interests would fiercely oppose such a change, but politicians surely have more power than bankers.

 

[WhoWee]

As I have stated before, I am convinced it is unnecessy for interest on loans to be charged as an incentive for debts to be repaid. All business, as I have said before, is based on trust, whether a company does work for which it expects to be paid once the job is completed or one expects an item to be delivered when payment is made in advance to a reputable company. We know how reckless lending by banks for profit can cause havoc with the global economy, even their own survival, unfortunately at huge cost to the taxpayer. Once again, I suggest if banks worldwide were no longer able to charge interest, their operations funded by the state, I feel certain the cost to the community at large would be far outweighed by the advantages to both business and consumers, thereby leading to greater stability and potential for growth in the global economy. Meanwhile the risk of another banking crisis in Europe would recede, as countries with huge deficits would stand a far better chance of repaying their debts once the burden of crippling interest was removed. Of course huge vested interests would fiercely oppose such a change, but politicians surely have more power than bankers.

You're suggesting that banks no longer pay interest on deposits as well?

 

[Nev]

You're suggesting that banks no longer pay interest on deposits as well?

Yes, interest doesn't necessarily encourage people to save.

 

[WhoWee]

Banks loan their deposits - I would argue that most people would not want their deposits loaned out without some form of compensation.

 

[Drakkith]

WhoWee, I think Nev is saying that banks wouldn't be for profit anymore, but run by the state. I personally don't want the government further entrenched in the Economy, so I don't like that idea at all.

 

[WhoWee]

WhoWee, I think Nev is saying that banks wouldn't be for profit anymore, but run by the state. I personally don't want the government further entrenched in the Economy, so I don't like that idea at all.

That would require the Government to have cash deposits to loan (at zero interest at that) - not borrowed funds to make payroll.