First of all I think wall-street is vital to capitalism. I’m just wondering how vital wall-street is to present day capitalism. I just recently read a book about financial markets. It occurs to me that the central banks actually play a huge role in each of these markets… so they’re not exactly good indicators of how an economy is doing because in my mind- it has the potential to turn into fascism (where the stock-traders and central bankers basically are one). I think that given the fact that wall-street- not our main economy- but since the stock-trading market is so heavily dependent on the government that we can get rid of it and then we’ll have to create a whole new system based on personal responsibility and safer decision makings with less of a central bank role. This is from a non-socialistic view here. I view wall-street as a thing that is in a socialist kind of market given with how much of a role the treasury and the fed play in it. How vital is wall-street to the ideals of capitalism? Can we do without it? Wall-street- as we know it now- isn’t really an accurate reflection of how the markets are doing at any one time. I’m just wondering what the libertarian perspective on this is.
Present day we have crony capitalism, not true capitalism. Our economy is also centrally planned by the Federal Reserve, who has a monopoly on the creation of our medium of exchange (money), the authority to counterfeit money to buy (steal) assets from the producers in our economy, and a monopoly on distorting/manipulating interest rates.
Capitalism in the free market sense is just people having property rights and the freedom to exchange their labor and produce with other goods and service (by other producers) in the economy. Where does Wall-Street banks fit in? They facilitate the exchange of property (stocks or bonds, securities) where investors and speculators create sufficient volume in the exchange of these securities to correctly determine their true values. Don’t forget the Chicago Board of Trade which similarly exchanges futures for determining the value of commodities.
I don’t see why we can’t get rid of all the other crap. Get rid of the Federal Reserve too. We can still securitize debt like selling mortgage bonds or credit card debt. We just don’t want the Fed to create credit out of thin air so investors can leverage their investments with debt created from nothing. You should still be able to leverage investments with debt, as long as that credit is drawn from real savings and not credit created out of thin air by the Fed. Such activities should have a direct impact to interest rates which will naturally regulate such risky activities.
Wall Street serves an essential function: creating a marketplace for capital goods. But at some point, it gained the power to fake the existence of capital goods and sell them on its own marketplace. Then it stopped being a tiny, essential part of the capitalist economy, and became the center of all profits in the economy. But it did not produce these profits, it scammed them out of real capital holders.
Perhaps, and also at what point did the fed become so involved with the market? I don’t think that people should go on and do as they have been doing for years- which- is keep on going in debt, and, buying and selling debt. That’s not how I think companies should run business.
I would go on and question the entire system itself. I would think that a company would make shares of its company available when it has the money to pay people… I wasn’t thinking that the entire system was based on people in the red. I know what the idea of the stock market is- but- really isn’t there a better way? It’s like this whole idea of exchanging interest in company is basically really just exchanging debt- and- I don’t think that’s how things should be done. And yes, I agree the federal reserve and central banks shouldn’t be able to manipulate markets to the level of which they do. That just doesn’t seem right. That needs to change.
Not very important at all. Just look at the current state of the economy. The government gave selected Wall Street firms 850 billion and that did nothing. The Federal Reserve has given Wall Street firms first dibbs on their 12 trillion and that is hurting the economy.
The answer is not at all. With computers and the internet there is no geographic location where all the money managers have to be. Look at arguably the most successful investor of the latter 20th century, he was from Omaha.
Why do you think exchanging interest (stocks) in a company is exchanging debt? There are many successful companies that have zero debt. It’s owners (its share holders) own the rights to the revenues of the company. When this company creates and sells new shares it is selling its equity which is a claim to ownership of its capital, it’s buildings and machinery, and future profits. The money it receives from the sale of those shares can be used to expand its business. It’s not debt. It doesn’t have to be repaid to share holders. The money comes from the savings of people who want to own a part of that business, and those same people in the future will benefit if the business is profitable. As profits come in the business will use most of it to expand business further (to grow) and also sometimes pay out some of the earnings to the share owners via a dividend. But the owners gain value because over time as the company and its profits grow so will the value in each equity share, that can then be sold for prices higher than that paid.
And to reply to your other post, there’s nothing bad about having debt. Companies borrowing money to increase their lines of production and to hire people in the process is a good thing. If they want to raise money, rather than continuously creating and selling new shares - which dilutes the value of existing shares - they just borrow money via issuing a corporate bond. This is self liquidating debt. The revenues earned by the new production will pay off the debt. Like if you take out a car loan so you can work a job as a pizza delivery guy. Without the car there would be no job. The job pays for the car. The bad type of debt is when people use it to consume. It doesn’t aid increased future productivity, but just the opposite. When we borrow to buy consumer goods we must refrain from future consumption in order to pay off the debt. It is okay if we borrow someone else’s savings (consume in place of someone else choosing not to consume). But if we borrow money created out of thin air and use it to consume simultaneously while other producers consume, it creates a false sense of increased economic wealth, while in actual fact, it is a consumption/destruction of real wealth from the economy. The economy is poorer, not more prosperous, when more is consumed than is produced. As for the boom/bust cycle and debt default, there’s no reason businesses should go bust and default other than because it made a bad decision to pursue production in something future customers didn’t want. In the case where the whole system collapses due to debt, it’s because the money borrowed was not based on real savings. It is money created out of thin air, used by the borrowers to take wealth from the economy that other producers have a right to. The economy is gradually depleted of its wealth if there are no savers (refraining from consumption) to supply credit to debtors. This gradually drives up prices (more money chasing less wealth) and it diminishes the future profitability of the new business venture, making it less viable. This is because there is less future wealth to consume the future products. If the money borrowed (to expand business) came from savings, the savers lending the money to business are foregoing their right to consume real goods and instead the business can secure those real goods to expand business without driving up the price of those goods. When the business produces future goods (produces wealth) and earns back the money to repay the debt it is this new wealth generated in the process that has restored the original wealth consumed by the debtor that the saver/creditor can now buy with his/her repaid money. It is the saver and their choice to not consume and them handing that right to the borrowing business that provides the material wherewithal for the business to profitably expand without boom/bust cycle.
As for the stock market, it’s just a meeting place like any other type of market where people can exchange goods or assets. If I walk into Walmart and ask to buy some of their shares I don’t know what others are willing to pay for their shares. In a market place where there is a continuous auction with high volume I can quickly see what the going rate is. By doing my own homework on the company’s balance sheet and economic prospects I can determine what I think the stock is worth. Based on the going market price I can choose to buy a share or not. The purchase/sale of stocks or bonds will occur whether there’s a Wall-Street or not. The stock market is just the convenient meeting place where people meet to make the transactions in higher volume. Higher volume increases liquidity of the shares and that should hopefully price the shares more accurately with respect to their true expected valuation.
And to answer your question regarding when the the Fed get involved with the stock market… When they were created in 1913. They are the bailout system for the banks and their unstable fractional-reserve scheme. The Fed also provides elasticity in the money supply, meaning they are there to create money out of thin air to make loans if money suddenly becomes in high demand. Rather than let interest rates regulate the demand for money, which they want to regulate instead, they just create money to throw the equilibrium supply/demand for loanable funds out the window. The Fed and big Wall Street banks are in bed together. WS Banks can borrow big sums of cash from the Fed (out of thin air) cheaply (low interest rate) so it can make huge leveraged bets in the purchase & sale of securities (stocks, bonds, commodities and derivitaves). This enables them to multiply their profits by ten times or more, but it similarly multiplies their loss by the same factor if the bet is wrong. If they make bad bets then it’s okay because they’re too big to fail. The Treasury, via the Fed, just bails out the bank and claims some ownership of the bank for doing so. This is what happened. Now, with the gov’t owning the WS Banks, it can dictate even more where the money is to flow in the economy so it can have better control of economic planning.
And yes, as you said, it doesn’t seem right. This is because it’s not right. It’s not a free market. The poker game is rigged. The gov’t manipulates many prices and valuations. They manipulate the price of many things via wall street banks such as gold. Do a google or mises search for “Greenspan Put”, “GATA” and the “Plunge Protection Team”.
Free market capitalism is the ability for individuals, producers, to exchange their goods and labor at prices they feel are reasonable. Prices will set by the free market through agressive competition for market share and profits, forcing prices down. It is gov’t enforced monopolies (either via cartels or unions - agitated for by special interest Lobby groups) that artificially raise the price of goods.
The answer is not at all. With computers and the internet there is no geographic location where all the money managers have to be. Look at arguably the most successful investor of the latter 20th century, he was from Omaha.
The NASDAQ is completely computer driven. There is no floor where people meet and yell at each other. The same goes for the FOREX foreign exchange market. But the fact of there being a meeting place isn’t the problem. The problem is that there’s a money creator (the Fed) in the picture which provides the capability to distort the market and its prices. It provides the ability to make huge risks and gambles, that are in the end paid for by Taxpayers and not the bankers.