This Game must Stop: Why we need stock market reform

The system is rigged, right?

Well, yes. But not the way you might think.

Anybody can invest in the stock market. There is no barrier other than needing something to invest. You don’t need a financial advisor, a college degree, or any other form of pedigree to open an account and buy stock.

It is another common myth that this is a rich man’s game. Millions of hard-working people invest in the stock market with every paycheck so one day they can retire without being forced to eat cat food. The trick is making sure you don’t end up losing more than you make. This requires a little knowledge and a lot of patience.

The current system allows sophisticated investors to engage in a variety of confusing transactions like shorts, puts, options and what’s known as “day trading.” These are all based on speculation and the promise of easy money. The problem here is that investors can make (and lose) big bucks this way and it’s completely legal. But where is that money coming from?

It’s not coming from innovation, productivity, or an increase in real value; it’s coming from the same pot of money that serious long-term investors paid to ensure their future retirement. The investors who game the system are not investing, per se, they are gambling. And while it’s currently legal, when they reap their rewards, others lose.

You can’t blame people for being angry at institutional investors for shorting Gamestop. Instead of using their wealth to grow a business, they used it to bet on a company’s failure.

As the famed economist John Maynard Keynes said in his theory known as Keynesian Economics, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.”

America seems to value capitalism above all else, including democracy. This may be attributed to a weak interpretation of Adam Smith’s 1776 publication The Wealth of Nations. For over 200 years, it has been cited as an argument for unfettered capitalism based on the idea that if a person works to his own benefit, he will naturally benefit others.

But we have tried the unfettered version of capitalism and it has failed us. Today the disparity between rich and poor is greater than ever and growing.

This is, in part, because the most oft repeated argument taken from Smith’s opus is false. As Keynes put it “Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”

Unfortunately, greedy and unscrupulous men do not work for the benefit of all. The rules they play by are weighted in their favor, at the expense of everyone else. This is the game that needs to be stopped.

Elizabeth Warren believes that regulatory control of the market is needed to protect the system from being abused. Smith understood this, but despite his understanding of this conundrum, his response was to promote better behavior by emphasizing morality, a solution conveniently left out of most economic discussions.

We cannot rely on people to do the right thing. The sad fact is that regulation is our only recourse. Just as we have laws against stealing cars, we need laws to prevent theft of equity.

Another reason the gap between rich and poor is so large is due to ignorance. Were any of you offered a course in investing for retirement in school? I wasn’t. I even took an economics class in college, and while I became a wiz at double-entry bookkeeping, I don’t recall learning a thing about investing in the market. Nor was I taught that putting money in a bank without investing it was tantamount to throwing money away.

(FYI: $200 invested monthly at 5% compounding annually results in about a quarter of a million in 40 years. The same amount shoved under your mattress, or left in a non-interest-bearing account, gets you a whopping $96k over the same time span).

In addition, we cannot deny the impact of institutionalized racism on income inequality. People of color have suffered in a myriad of ways due to business practices that have long discriminated against them (more on this in the next installment).

The China Hustle, is a documentary about another legal scheme to siphon money from unsuspecting investors. It started as a scam to overvalue worthless foreign assets but ended as another short scheme, with dire consequences for many individuals who lost their entire life savings as a result.

(The following summary of the scheme comes entirely from the documentary referenced, above. I’ve been unable to find confirming evidence anywhere else.)

Here’s the short (no pun intended) version:

Institutional investors found worthless Chinese companies, bought unused tickers on the U.S. stock market, and assigned those tickers to these Chinese companies. When they filed with the SEC, they substantially inflated the value of these companies on forms that nobody is required to vet. Then they sought out American investors who knew nothing about China or its companies and promised they’d get rich by investing in the "China growth story.” It did not end well. When a couple of investors who were suspicious of these companies decided to investigate, they confirmed the valuations of these companies were indeed inflated.

They took their evidence to Congress. Congress wasn’t interested.

The investors who paid for the research that uncovered these bogus valuations, blew the whistle. But not before they shorted the companies. When word got out in the marketplace that the investments were a scam, the big money investors got richer and the little guys who trusted these same investors with their life savings lost everything. And so it goes.

So, back to Gamestop.

Big investors short the stock. But this time, Elon Musk gets on Twitter and complains about it. And before you know it people start getting mad. It’s righteous indignation, to be sure. How dare these people devalue a company just so they can keep lining their pockets! As the furor increases, small investors start buying Gamestop shares en masse.

The market value (which is based on how many people want the stock, not what the company is worth) goes crazy. Gamestop jumps from its pre-pandemic $4/share to $480/share.

But there’s a problem: Gamestop isn’t worth $480/share. It went up because so many people played the market at the same time. And some of them may not be in a position to lose a lot of money. When it all settles down, there’s no telling what the stock will be worth.

If you timed this perfectly and sold your shares at $480/share, then good for you. But if you paid more than it’s worth now, you’ll likely lose. Because it’s probably not going back to $480. During the dot.com bust, companies that increased their market price due to speculation eventually returned to their real value. And a lot of people who thought they’d be getting rich, lost out.

There’s nothing wrong with people saying “no” to the big institutional investors. It’s far past time to stop the manipulation of the market that favors wealthy investors who have the means to gamble with fortunes. But the Gamestop ploy isn’t the way to do it. Wealthy institutional investors can afford to take a big hit now and again. But I’m willing to bet that most of the folks who tried to beat the Wall Street crowd by investing in Gamestop can’t.

Even as the little guy stuck it to Wall Street investors, the power still belongs to big money; hence, the halt to Gamestop trading by TD Ameritrade and The New York Stock Exchange. If you were mad when you bought Gamestop stock, you must have been furious if you tried to sell and you couldn’t.

There is a solution: regulation. Let’s put a stop to this trading game instead of making bets against Gamestop.

In the meantime, it’s still possible to invest in the market over the long run without being victimized by institutionalized investors. This is true even if you are just a working stiff with a small amount of income to invest. Anyone can turn $200/month into a quarter of a million dollars over the course of your working life.

This is possible and it’s based on a realistic, low-risk scenario that only requires you to understand two things about the market:

-       Compound interest

-       Index funds

However, you also need to be consistent, patient, and disciplined. This is not a get-rich-quick scheme. If you’re interested in learning more about how to invest safely for long haul, stay tuned.

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In the meantime, feel free to post questions in the comments section. I’ll be sure to include answers (if I know them) when I post again. And if I don’t, I’ll do my best to point you in the right direction.

An Open Letter to Marjorie Taylor Greene

 

Dear Crazy QAnon Lady,

I’m worried about you. You’re watching too much TV. Game of Thrones isn’t real. The part where Arya Stark can put on someone else’s face like a mask, so she looks just like them...not possible.

Likewise, your claim that Hillary Clinton is murdering kids and wearing their faces and drinking their blood is beyond ridiculous.

Secondly, liberals are not trampling on your First Amendment rights; you’re trampling on theirs. My guess is your information database is corrupt, so here’s the reality you seem determined to ignore, taken from Wikipedia, italics, mine:

 

The First Amendment was adopted to curtail the power of Congress to interfere with the individual's freedom to believe, to worship, and to express himself in accordance with the dictates of his own conscience…

At one time, it was thought that this right merely proscribed the preference of one Christian sect over another, but would not require equal respect for the conscience of the infidel, the atheist, or the adherent of a non-Christian faith such as Islam or Judaism. But when the underlying principle has been examined in the crucible of litigation, the Court has unambiguously concluded that the individual freedom of conscience protected by the First Amendment embraces the right to select any religious faith or none at all.

 

In other words, you don’t get to force your misguided version of Christianity on us. The First Amendment protects the infidel, the atheist, the Muslim and the Jew. It means anybody of any religion (or none) has the same rights you have.

 

Liberals are in line with the First Amendment as they welcome all religions and ask only that the Constitutions and Amendments to it are honored. You are in direct violation of the First Amendment when you insist that your God, your religion, and your political opinions should be allowed to override others.

 

You also appear to have trouble with projection. Just because you are bloodthirsty, power-hungry and intolerant, doesn’t mean we are. Please stop projecting your own inability to accept reality onto us. We’re actually pretty good at it. In fact, that’s how we’ll solve problems, like climate change and stopping Covid-19.

 

Lastly, getting elected to Congress by other so-called Christians doesn’t make you right. It simply makes you one of too many who are intolerant, mean-spirited and dangerous. None of us care if you believe in fantasies. You are free to be as ignorant as you wish. But you are not free to kill us or use the power of your seat in Congress to perpetuate your bizarre fantasies. If a line has been crossed here, it is by you, not by us. 

 

 

We have entered the Age of Aquarius: Denial is no longer an option

 

I’m advocating for equality, so I’m against denial in all its forms. I’m also an advocate for solutions, and any problem-solver knows denial will kill any chance you have of solving any problem. In fact, denial may be the biggest single source of all our problems. Whether we’re talking about climate change, medicine or politics, denial is a killer. Here are just a few examples.

Between 1946 and 1985 our government worked to remove the life-threatening uranium in mines throughout the Navajo Nation. Obama’s administration even put a moratorium on uranium mining due to the documented health hazards it creates. And yet, just this year the Trump administration has decided to resume uranium production. This headline says it all:

Trump is using a pandemic to weaken environmental law. First victim: The Grand Canyon

Opinion: There is no such thing as a ‘safe’ uranium mine. Yet a new report recommends excluding these mines from public review and comment.

Just leave the information out of the report, right? Problem solved.

Lest you think this is a Trump phenomenon, here’s an example from the way way back machine.

Before Pasteur discovered germs, a Hungarian doctor named Ignaz Semmelweis discovered a connection between increased death rates of mothers whose babies were delivered by surgeons vs. nurses. He noticed that nurses were not exposed to the same conditions as surgeons, who were typically covered in blood and debris from whatever procedure or autopsy they were performing when they were called to deliver a child.

Those men carried disease to these hopeful mothers and were killing them in unprecedented numbers even though nobody understood how.

When Dr. Semmelweis tested his theory by having the docs wash their hands before delivering babies, the death rates dropped immediately and dramatically. But instead of maintaining that practice, the other doctors thought it would make them look bad if they changed that one thing. They feared it would send the message that they were indeed responsible for the deaths of so many women. So, they stopped the experiment, and the death rates went back up.

The genius who figured it out was shunned, treated as a pariah, and died in a mental institution 18 years later. This is not a one-off. For centuries people have agreed to lie for each other to maintain their positions of power.

When Trump tried to do business in Australia in the late ‘80s, his “known ties to the Mafia” were cited as the reason he was not allowed to set up a business there. If the Aussies figured it out in 1986, why didn’t the Republican Party know this in 2016? Denial.

If any member of Congress failed to know the truth about the Republican candidate they voted for, they are guilty of enabling the destruction of our democracy.

Every supporter who decided to support this incompetent and mentally ill candidate so they could get a little of what they wanted from him is guilty. It doesn’t matter if they finally saw the light. What matters is that when it did matter, they denied reality to get what they wanted.

John Bolton had the audacity to say it was the Democrats who were at fault for the failure of the impeachment the Dems attempted in 2020. He cites their narrow focus on Ukraine; he says Trump did similar things in Turkey and China, and it’s all the Dems fault for not adding that to the impeachment charges. He knew of Trump’s guilt, he knew more than the Dems knew, yet he withheld that information, willingly. He denied us the truth as he knew it, so he would not have to oppose the Republican Party’s wishes. He caved.

The only thing I’m aware of that might have caused Republicans to find Trump guilty would have been the sworn testimony of Robert Bolton. Yet he used the excuse of a technicality to avoid testifying—he said he would only testify if the Senate were to subpoena him. But he knew they wouldn’t.

Wouldn’t a patriot have volunteered this information to protect our country? I think so. I think Bolton is a traitor. And his colleagues are no better. All of them are deniers, pretending they don’t know what they know, so they don’t have to do what they don’t want to do.

Several days ago, just after the assault on the Capitol, Colin Powell was interviewed on CNN and said he wouldn’t recommend another impeachment of Trump. “It would take too long; it would be a distraction,” says Colin Powell, former Secretary of Defense and a retired Four-star General.  

I would like to correct him. A distraction is not what facing reality and acting appropriately should be called. We should not refer to doing the right thing as a “distraction” just because it’s hard and might not have the desired effect.

Who gave Congress permission to watch this unfold rather than save us from this monster in the White House? Where is the public service they are so proud of now? If nothing else, impeach him so he can’t run again. Is that not worth the trouble either, Colin Powell?

It appears Republican leadership (one exception: Mitt Romney) has no capacity for understanding the significance of allowing the natural consequences of one’s actions to be felt. If their children were breaking windows and destroying their neighbor’s furniture, do you think they would say “Gee, we don’t have time to punish them, let’s be nice and hope they stop.”  

Of all the Republicans in Congress, it seems that only Mitt Romney has consistently been willing to face reality. Only Mitt Romney is willing to admit that “the best way we can show respect for the voters who were upset is by telling them the truth…President-elect (Joe) Biden won this election. President Trump lost.”

Even Jeff Flake, who left office and is no longer part of the Republican machine says simply, “I just want Trump to go away.” That’s not how this works.

Even after the Capitol riot, which has left five dead so far, Ted Cruz, Josh Hawley, Jim Jordan, and others keep feeding the Big Lie. (If that term seems vaguely familiar, it’s because it was first used to describe Hitler’s propaganda machine.) If you still think, “It can’t happen here,” you’re wrong. It’s happening here now.

In the words of Cori Bush, from her January 9^th Op Ed in the Washington Post:

Many have said that what transpired on Wednesday was not America. They are wrong. This is the America that Black people know. To declare that this is not America is to deny the reality that Republican members of the U.S. House and Senate incited this coup by treasonously working to overturn the results of the presidential election. It’s to deny the fact that one of my senators, Josh Hawley, went out of his way to salute the white supremacists before their attempted coup. It’s to deny that he appropriated the sign of Black power, the raised fist, into a white-supremacist salute — a fist he has never raised at a march for Black lives because he has never shown up to one. It’s to deny that what my Republican colleagues call “fraud” actually refers to the valid votes of Black, brown and Indigenous voters across this country who, in the midst of a pandemic that disproportionately kills us, overcame voter suppression in all of its forms to deliver an election victory for Joe Biden and Kamala D. Harris.

Thankfully, two men capable of facing reality are about to join the Senate: Rev. Raphael Warnock and David Ossoff. With Kamala Harris holding the deciding vote in case of a party line fight, we have a chance to finally make progress. But it won’t happen automatically.

It will be imperative that going forward we elect people to lead us in Congress who accept reality rather than relying on denial; we need people who will proactively move toward solutions rather than waiting for things to improve on their own; we need people who will work actively to protect the people of this country from enemies both foreign and domestic.

This is still America. We still get to choose. But we need to choose a lot more wisely going forward. And we need to accept the fact that denial is no longer an option. Because we now know, unequivocally, that what you don’t know can kill you.

NOTE: Since I wrote this, Colin Powell has declared himself no longer a Republican and a handful of other Republicans have spoken out more vehemently against the violence. Unfortunately, the Republican leadership didn’t have the foresight to see this horror coming or the courage to take a stand before the violence occurred.