The problem with the stock market

[unixronin]

The Geek with a .45 explains why the stock market in its current form no longer fosters investment.  When there is no real-world correlation between a company’s stock valuation and its actual ability to create value, when the board and the senior executives sit behind closed doors ignoring the running of the company while they brainstorm ways to game the system for their own gain and it works, when corporate execs can get rich on the stock market by running a formerly going concern into the ground, the stock market has become nothing more than a form of gambling for its own end.

Comments

[randwolf.livejournal.com]

"Unfortunately, too much of the value of the stock comes from the trading of the stock itself, against the expectation that the value would increase, rather than any intrinsic value of the underlying company." is a concise description of pricing in a bubble market, whether the commodity is physical like tulips, land, or "precious" metal, or abstract like securities.

It is of course the SEC's job to regulate these practices. Several other banks and banking agencies regulate other major markets. The SEC was taken off the beat by Reagan. Management has been installed in other places that does not believe that bubbles can be prevented. Greenspan, a former student of Rand's, at one time believed that the very attempt to do so is immoral. See for instance here (http://baselinescenario.com/2009/07/24/after-peak-finance-larry-summers-bubble/). On the validity of regulation, see here (http://krugman.blogs.nytimes.com/2009/07/30/the-lessons-of-1979-82/).

We've missed the opportunity to reregulate that the recent banking crisis provided--the conservative Senate isn't ready to act yet. (Maybe we can load the Senate conservatives into a time machine and beam them all back to 1900, where they would be forward-looking.) Meantime, I don't think things are going to get better until Larry Summers and perhaps Timothy Geithner lose their jobs. I expect Summers will self-destruct. I only hope he will do so in time for a good replacement to be found.