Well it took me more than the one day I predicted to finish this column, which purports to explain that dull feeling so many of us have in our hearts these days when we consider the U.S. economy. Our entrepreneurial zeal is to some extent zapped. For a decade it seemed we needed to jump from bubble to bubble in order just to drive economic growth — growth that ultimately didn’t last. What happened? Initial Public Offerings (IPOs) went away, that’s what happened.
I wrote several columns on job creation over the last year, columns that explained in great detail how new businesses, young businesses, and small businesses create jobs and big businesses destroy them. Big business grows by economies of scale, economies of scale are gained by increasing efficiency, and increased efficiency in big business always — always — means creating more economic output with fewer people.
More economic output is good, but fewer people is bad if you need 100,000 new jobs per month just to provide for normal U.S. population growth. This is the ultimate irony of policies that declare companies too big to fail when in fact they are more properly too big to survive.
Our policy obsession with helping big business no matter which party is in power has been a major factor in our own economic demise because it doesn’t create jobs.
Our leaders and would-be leaders are really good at talking about the value of small and medium size businesses in America but really terrible about actually doing much to help.
Now here comes the important part: if small businesses, young businesses, new businesses create jobs, then Initial Public Offerings create wealth.
Wealth creation is just as important as job creation in our economy but too many experts get it wrong when they think wealth creation and wealth preservation are the same things, because they aren’t.
Wealth creation is Steve Jobs going from being worth nothing at age 21, to $1 million at 22, $10 million at 23, $100 million at 24, to $9 billion at his death 30 years later and in the course of that career creating between Apple and Pixar 50,000 new jobs.
Wealth creation is not some third generation scion of a wealthy family turning $4.5 billion into $9 billion over the same period of time, because that transformation inevitably involves a net loss of jobs.
The fundamental error of trickle-down (Supply Side) economics is that it is dependent on rich people spending money which they structurally can’t do fast enough to matter, and philosophically won’t do because their role in the food chain is about growth through accumulation, not through new production.
New is the important word here because new jobs are created in inordinate numbers mainly by new (first generation) tycoons, not old ones or second or third generation ones. We need new tycoons and we make new tycoons almost exclusively by creating new public companies.
Take Ted Turner as an example. Ted created thousands of new jobs in his career but I’ll bet that he has added zero net new jobs since selling Turner Broadcasting to Time Warner in 1996. That’s not a bad thing, just an inevitable thing, and the lesson to be learned from it is that we need more young Ted Turners.
Every company that is today too big to fail was once small and literally awash in new jobs. We need more such companies to create more too big to fail enterprises, but without a lot of successful IPOs that isn’t going to happen. It hasn’t happened since the late 1990s and that’s what has sapped the mojo from our economy.
This lack of IPOs is what has also turned Venture Capital from an economic miracle into an embarrasment. Lord knows I’ve written enough about what’s wrong with VCs but until writing this column I never would have identified them as victims, but they actually are.
Venture returns are in the toilet over the last decade or more not just because VCs became inbred and lazy (my usual explanation), but also because the game was changed on them almost without their knowing and IPOs went away as a result. They couldn’t get their money out of portfolio companies to reinvest and compound it and when they did get their money out it was through mergers or chickenshit acquisitions that didn’t yield the same multiples.
Not only did IPOs go away, the few that did happen more recently haven’t generally been as successful (Facebook, anyone? Zynga?). We just aren’t as good at creating wealth today as we used to be.
How can that be? Since the 1990s we’ve done nothing but reduce regulations to encourage economic growth. We’ve kept interest rates inordinately low for a decade, which should have given entrepreneurs all the capital they’d ever need to build new empires, but it didn’t happen. A lack of IPOs meant new companies were starved for the growth capital they needed to take their businesses to the next level. Banks forgot how to make money by lending it to people who could actually use it and so they didn’t lend and entrepreneurs suffered from that, too.
The world is awash in money, but those who can actually use it can’t get any.
So what caused the death of IPOs? It starts with stock market decimalization.
Here I have to give credit to David Weild a senior advisor at Grant Thornton Capital Markets, who made a fabulous presentation on exactly this topic a couple weeks ago at a crowd funding seminar in Atlanta. You’ll find his entire presentation here. The charts included with this column were mainly stolen from Weild.
Stock market decimalization came along in 2000 with the idea that it would bring U.S. markets into alignment with global share pricing standards and (here’s the harder to buy one, folks) decimalization would help small investors by marginally reducing the size of broker commissions. With stock tick intervals set at a penny rather than at a sixteenth of a dollar (an eighth of a dollar prior to 1997), it was argued, commissions could be more accurately calculated.
Perhaps, but at what cost?
Here’s how decimalization was described by Arthur Levitt, the Fed Chairman in 2000 who has since recanted these words: “The theory is straightforward: As prices are quoted in smaller and smaller increments, there are more opportunities and less costs for dealers and investors to improve the bid or offer on a security. As more competitive bidding ensues, naturally the spread becomes smaller. And this means better, more efficient prices for investors.”
Decimalization made High Frequency (automated) Trading possible — a business tailor-made for trading large capital companies at the expense of small caps and IPOs. Add to this the rise of index and Exchange Traded Funds and all the action was soon in large cap stocks. Market makers were no longer supporting small caps by being a willing buyer to every seller. Big IPOs like General Motors flourished while little Silicon Valley IPOs dramatically declined.
There are 40 percent fewer U.S. public companies now than in 1997 (55 percent fewer by share of GDP) and twice as many companies are being delisted each year as newly listed. Computers are trading big cap shares like crazy, extracting profits from nothing while smaller companies have sharply reduced access to growth capital, forcing them at best into hasty mergers.
Yes, commissions are smaller with decimalization but it turns out that inside that extra $0.0525 of the old one-sixteenth stock tick lay enough profit to make it worthwhile trading broadly those smaller shares.
Decimalization pulled liquidity out of the market, especially for small cap companies, hurting those companies in the process. Markets and market makers consolidated, which also proved bad for small caps and their IPOs. Wall Street consolidation was good for big banks but bad for everyone else.
Now why doesn’t that surprise me?
The dot-com bubble was a bubble, we all sort of knew, so it would have burst inevitably, but decimalization made it so bad that whole markets died, leaving us with our present situation. Here’s a chart suggesting we’d be 18.8 million jobs ahead if decimalization hadn’t happened. That’s 14.8 million jobs more than we have today and the difference between economic stagnation and boom.
But we can’t just go back to the old ways, can we?
That’s what my next column will be about.
No Savings = No Investment. End of story.
Oh, and money doesn’t matter. Adding more zeros to your bank balance will not generate electricity to run an office.
Actually part of the problem is also the banks – small businesses aren’t getting the loans they need to last ’til they are ready for an IPO, which then encourages them to just sell out to a larger company (that also likely isn’t doing too well).
The issue there is the interest rates for loans are just collectively too low. No bank makes a profit on a 2.8% mortgage. I’m not saying a return to Reagan era 18%, but certainly we can do better than 3. I’m thinking a healthy rate is 6-8% for good credit, 12-16% for risky, and that can support small business loans at 4-6%. Until banks actually remember how to make profits on loans again, they’ll never make the small business loans that the economy needs to stop hemorrhaging what few new jobs it is attempting to create.
I thought I had heard at the time that decimalization was the devil. I’ll buy your argument, Cringe, because the bigger the rounding error, the more folks will want to round things off and keep the change.
Can’t wait for your third column. Will crowdfunding be thrown in there?
What about Sarbanes Oxley? That was a major hit to the bottom line of doing business, even large caps. Overnight the large company I work for saw an explosion of vice presidents (who used to be managers and directors) because they could now be held accountable for numbers reported. And I doubt too many VCs who had some management positions in startups just for the paperwork would be very interested in having to sign off on the quarterly reports when they don’t have much to do with the day to day operation.
I would have to agree here. Sarbanes-Oxley in my opinion has had a much greater impact on the willingness of companies to go public than decimalization. Think of the regulatory compliance costs as a percentage of revenue for a company with say $10 million in revenue versus one with $1 billion. S-O creates a huge hurdle for the smaller company to jump over leading more companies to stay private or look to an acquisition.
Also, the statement “Since the 1990s we’ve done nothing but reduce regulations to encourage economic growth” is quite laughable. The rhetoric of the Bush years not withstanding, just a quick glance at the growth in the length of the Federal Register or the explosion in the Federal budget and debt should easily debunk the claim that regulation is less a burden on business today than 20 years ago.
Exactly – even up here in Canada the costs involved in book keeping for Sarbanes-Oxley is a huge detriment for a small company to get on the stock exchange.
(If you are running a tech startup, and want to go public, you go public on US exchanges).
You have to be big enough to be able to afford at least one full time accountant JUST to manage the Sarbanes-Oxley book keeping.
Agree with the 2 comments here re: Sarbanes-Oxley. It changed the economics of the IPO in a way that creates a significant disincentive to go public. The cost of being a small public company is far too high, so you either go big–like a $1bln IPO–or get acquired as your exit. Have even discussed this with ex-Hill staffers across the spectrum and experienced in financial regs who’ve agreed on this being a consequence.
I don’t think it’s Sarbanes-Oxley per se, but rather how it was implemented across corporations that’s caused the problems.
Let’s take servers identified as SOX important, for example. When SOX was rolled out, a few servers in a corporate farm were identified. A few audit cycles later, more were identified. And then more and more as servers within a corporate server farm become more interconnected, until the number of servers identified as SOX gets to a critical mass.
What needs to happen is that there need to be a few steps back to look at the entire structure and figure out what is truly important and ought to be labeled as such. With nobody at the helm to perform that necessary function, people will assume the worst and keep adding servers to the SOX lists.
Sarbanes-Oxley has performed some necessary functions in getting people to identify and standardize processes and paperwork. In the pre-SOX days, a few people could wing it and keep a farm up and running, but at the risk that one easily identifiable screw-up could wipe out a server farm. Now, there’s (theoretically, at least) checks and balances to make sure that doesn’t happen. Of course, the flip side of it is that SOX makes it easier to send the lower level jobs overseas: follow the process, get the result. The happy medium is having both sets of folks: one group to handle the standard stuff, and another few to go in and do the radical surgery when necessary. Unfortunately, what ends up happening is that everybody loses because people are paralyzed by the bureaucracy.
The 25 cent to 1 cent thing would be irrelevant if companies could be listed with shares valued at less than a dollar. In the UK we have a proud history of penny shares – share price of 10 pence, 1p on the price = 10% rise.
This could be happening, except market rules with the Nasdaq and NYSE have minimum share prices that must be exceeded. This forces all the penny stocks to reverse split every few months, to “increase liquidity”. Reverse splits then increase the lack of return from a uptick, and the cycle continues. This also puts those companies below a dollar into a difficult position, as everyone sees them as dead in the water and waits for the split – continuing the spiral.
So really what is needed is no minimum share price – leave the company to decide.
However I do not believe this creates any more jobs. IPOs are a product of a system, not the beginning. All around the world small businesses grow to be big businesses without going anywhere near stock markets. Economic demand and cost base control job creation. Currently cost base in the west is wildly out of sync with the east. Economic demand therefore dries up because its a circle.
Stocks just reflect this.
A great article and interesting article, Bob!
One thing that you haven’t mentioned is the deliberate destruction of jobs by companies.
For a detailed, well-researched, and quietly devastating account, see the recent article by Matt Taibbi in Rolling Stone magazine, about how Bain Capital operates:
Greed and Debt
I mention this article not be be political, but because it shows a major problem – whose cause is simply bad provisions in the tax code. Without tax relief for leveraged buyouts it couldn’t happen.
As a followup to Mark’s post, here’s a 3-minute video explaining how private equity works:
http://robertreich.org/post/20930554256
It would be nice to discourage large companies in a big way… I agree we need to. International competition would make that hard to do. Who goes first? What about Asia where large companies seem to be an even greater part of the culture?
If large companies then spent their riches back into the system, either by providing the capital to the VCs, or by other forms of investment in the system (say, Rockefellers and their very extensive investments in the National Parks), that would be one thing.
But that is no longer what large companies do with the money they have. They shelter it, hide it, tuck it away where it does no good to anybody. They can’t spend it, they won’t invest it elsewhere, so it just sits there, spinning around Wall Street’s big company trades (which in the end only produce profit for the brokerage via commissions) or lying around in offshore tax shelters. If we were to take out all of the money sitting useless in such places from the wealth statistics, we’d probably find out exactly why we are so much worse off today.
You are spot on, but let’s be straight: They are removing “their” money from the economy and only re-injecting it when they feel like it would make enough of a multiple.
So relying on the institutional rich to grace public works with their largess – that isn’t a reliable or even predictable system for revenue.
If there are no IPOs happening… how are all these start-up incubation centers popping up in every city going to make their money?
Hmmm.. I wondered why they want $125/month for visitation or $275/mo for desk space.. and $100 to $400 for a weekend course. I thought it was to make their investment in your company look better ( as with rock bands and record labels.. they give and take at the same time ). Is it worse than I thought… only an investment tease?
Maybe it’s part of the education loan bubble… government backed loans you can never escape from.
Could I suggest that it’s not because of the decimalization but rather a change of focus by investors away from companies to property?
They’d just been burnt by the dot coms. Regular companies were stagnant. So there wasn’t the same opportunities. Then comes along a new idea – properties. And not just regular mortgages, but all those duff and un-investable mortgages repackage in to a more palatable form.
Ultimately we’re now in a depression because those pre-packed investment mortgages had no viable substance. Until we hit the reset button and properties become somewhere to live again, rather than invest in, we’ll still be in recession.
I agree with Dr John,
I have very clear memories of amazingly empty bay area freeways after the dot com collapse eliminated tens of thousands of jobs from the area. Everyone felt very burned by the stockmarket. Not long after that, it seemed like everyone was looking at real estate as the ticket to wealth, the stock market just seemed too risky at the time.
I dont know enough about decimalization to know if it was a significant factor for IPO’s, certainly I never heard anyone say, I’m out of the stockmarket and getting into real estate because of decimalization.
I don’t think Bob is claiming that normal investors have left; the change is good for them, on any given transaction. He is claiming that market-makers (brokerages) no longer make so much profit, so they aren’t bothering to do it for smaller companies. Without them, the market isn’t as liquid, and an IPO may not take place at all. I’m not convinced (let alone convinced that this is the problem with the economy), but it is at least plausible.
I don’t know much about stock trading, so maybe this is obvious to everyone else; but you didn’t explain why automated trading is “tailor-made for trading large capital companies at the expense of small caps and IPOs.” Why isn’t automation equally helpful for trading the small stuff?
Due to a lack of volume in smaller stocks (caused by having fewer outstanding shares), there is not enough liquidity to support active or higher volume trading.
Hope that helps.
Two simple changes would eliminate high frequency trading and any deleterious effects it has on the market.
1. Enforce margin requirements. For the past 80 years the law has said that every order in the market must be backed by capital (or loaned capital, e.g. margin) in the originator’s account. In the HFT world, they are spewing thousands of orders per second while only maintaining margin for a tiny percentage of them. If all of those orders were to get filled, they’d be screwed. By enforcing the margin requirement, HFT shops would need a) a lot more capital, or b) to slow down.
2. Require a minimum time-to-live (TTL) for all orders; 1 second sounds good. Some orders are live in the market place for only a few milliseconds before they are canceled. It is impossible for a human (and for most automated trading systems) to respond to such a short lived order. If the order had to stay in the “book” for 1 or 2 seconds, more systems (whether manual or automated) could participate.
Coupling #1 and #2 together would essentially legislate HFT out of existence (these rules already exist for many foreign exchanges, so we know they do work).
By enforcing #1 and implementing #2, the size of the tick is irrelevant. Why you would hang your entire thesis on tick size baffles me. Apparently the Grant Thornton presentation excited you beyond all reason.
You are writing about “robo-trading,” or automated trading, which has definitely been detrimental to the average individual trader.
However, Bob mentioned that robo-trading is mostly done on large-cap stocks, and the problem with the small-cap stocks is lack of maket makers making a market (i.e., providing a buyer and seller when a trader wants to sell or buy) because it’s just not worth it for them to do so for 1 or 2 cents per share, when they used to get at least a sixteenth (1/16 = 6.25 cents per share) in the past, which made it worthwhile for the market makers to support and provide liquidity for a small stock.
Thus, small cap stocks have become like a ghost town.
I think high-frequency trading (HFT) will eventually go away, or at least become unremarkable, by natural/organic means. It’s like any other business: it eventually becomes commoditized, and no longer offers massive profits. Already the trend is having to work harder for not as much profit.
What if the algorithms used by HFT shops were available as off-the-shelf software packages? So the people who act as counterparties to the HFT traders will have have the same advantage, and execute their trades in such a way as to minimize their “haircut” to the HFT shops.
I think you meant that Arthur Levitt was SEC chairman, not Fed chairman.
I’ve been following all of this high frequency argument for some time now. As a very small investor but avid learner of the markets – is it possible for you to explain in very simple terms how high frequency trading makes money trading at $0.0525 per tick? How many shares would have to be bought/sold to make money on this?
Thanks
@Sol, “is it possible for you to explain how HFT profits trading at $0.0525 per tick? How many shares would have to be bought/sold to make money on this?”
Let’s say you trade in lots of 100 shares. So a $0.0525 tick (a pretty big tick, actually) means $5.25 in value change (simple multiplication). So you buy 100 at 0.0525 for 5.25. Then it upticks to 0.105, so you sell all 100 shares for 10.50. That’s $5.25 in profit.
Note that that is over-simplified: there are exchange fees and probably a clearing fee involved. But a firm that does this will have negotiated deals with the exchange to keep fees at a minimum.
Now, $5-minus-fees may not sound like much, but consider that can happen in the space of literally less than a second. In an active market, you have a lot of opportunities to make these small wins. And depending on the size of the market, if you can trade larger lot sizes, then that further amplifies the effect.
Furthermore, in markets other than stocks, the price actually represents a fraction of the actual product’s price. For example: the big foreign currency exchanges deal in lots of one million units. According to Google, the current price of one Euro (EUR) is 1.2602 USD. On the big FX exchanges, if you say “buy 1 EUR”, you’re actually saying “buy 1 million EUR”. So you can see how even a 0.0001 change in price equates to a fairly large actual change in value.
@Matt: Thanks for the example. Makes sense now.
Many of these market making firms take a small loss or wash the trade. The way they make money is by receiving huge rebates from the exchanges for “providing liquidity.” That is, the race now is to actually make the trade first even if it results in a small loss because it counts toward their rebate.
I think you’re giving short shrift to something else which is also playing a major role. The increasing role of IT in modern companies of all sizes.
Look at FaceBook. Everyone was hoping its IPO would be a return to the paper-wealth creating feeding frenzies of the dot-com bubble. It didn’t happen. Part of that is because modern, IT-heavy organizations tend to have very few jobs and razor-thin margins. Sure, there were companies like that during the dot-com bubble, but they didn’t last.
Many of the modern technological creations are built around very few people and very few assets. They, increasingly, involve a handful of people and a bunch of cloud servers rented by the hour with no long-term contracts.
So, where is the need to raise millions or billions in an IPO
?
Hey Bob, great article. I think you missed one point though, or touched on it really briefly. A little background first:
“Market Maker” is a proper noun, sort of, they are a consortium of trading houses that make up the NASDAQ. The NASDAQ isn’t a place, unlike NYSE, well except for that theme restaurant off Times Square. Since decimalization, other markets have joined in together, and there really is one single unified American trading system for equity securities. When you place an order with your broker, he reaches out to a Market Maker to execute the order. That Market Maker looks on his books and tries to match your order with a corresponding opposite order within his own set of managed assets. If he has one there he fills the order, otherwise, he forwards your order to the Level 2 Market.
Done with the background. Prior to decimalization the price differences between Level 2 orders could be for as much as $0.0625. Level 2 orders are big, Market Makers like to consolidate them. They get charged fees for exchanging stocks there. So incomes the middle man. Individuals that are licensed to trade on the Level 2 market but aren’t a Market Maker themselves. They buy from one selling one sixteenth lower, and sell to the guy above. Only they noticed the difference before the manager at the Market Maker.
So $625 a pop minus fees for not doing much but noticing a gap. Pretty swanky. Only the Market Makers didn’t like that. They were missing out on making that same kind of money. Who makes up the NASDAQ and now all of the US Equity Market? The Market Makers, enter decimalization. Squeeze out the L2 traders, funnel money in to the Market Makers through high-velocity trading.
High frequency trading was not possible in 2000. The technology has moved forward thanks to Mr. Moore, so now there are networks, fast data centers and the infrastructure to make it possible. Does anyone really believe that that it would not happen at a bit more per tick? Maybe not in these volumes.
The whole things sounds more like a perfect storm of tech enabling the HF traders, the dot com and relestate bubbles scaring off investment, and this.
Bob, I know you are planning to retire. You must find a young padawan and train them to find and write insightful articles with real depth, like this one. There is no place else on the web or in print (ha) where I find reporting like this.
“Always two there are, no more, no less: a master and an apprentice.” >> Yoda
Your user interface for submitting comments is not very forgiving on a touch-based interface. Too easy to submit a comment when you’re trying to edit. Having the submit button further from the text input field would be helpful.
Reading stuff from Paul Graham, it’s easier than ever to get a start-up to the “ramen profitable” stage i.e. if the founders get their expenses way down (eating lots of ramen), they can focus on the business full-time, live off what they’re making and never NEED venture capital. They may flame out; a very high percentage of start-ups do. But they never need much in the way of outside investment. The founders never lose control. The company may never become “too big to fail.” They never employ large numbers of people. But, it the founders make enough to get by, and maybe employ a few family and friends, that’s successful enough for them.
My point is that the game has fundamentally changed. And this appears to be the new “normal.”
You paint your picture with a mighty broad brush. Each of the issues you mention are much more complex than you suggest and while decimalization may have many of the effects you mention it can hardly be totally to blame for the current economic stagnation and recent job loss.
Steve Jobs, certainly my technology hero, may well have created 50,000 jobs but he probably is responsible for the loss of ten times that many – phone book publishers, newspaper editors, cel artists, hard drive manufacturers, etc. His products, which I love and use daily, have allowed me to reduce my spending on print publications, desktop computers, landline telephones, etc. These changes reflect macroeconomic and structural changes that are underway throughout the economy.
I think you need to broaden the time horizon on your analysis.
touche!
In the part 1 of this theme, I mentioned the conversation in Singapore between “Bunnie” and Ian.
The picture they painted implied a plethora of small manufacturers & jobbers exist in mainland China … translation: lots of employees in “small shops” behind the scenes. That the past equivalent ecosystem in Hong Kong and Singapore has atrophied.
Bunnie said it is important to get to know them … that they get to know *you* (a small fry) … to mutual future benefit. AND THE PRICES ARE RIGHT, meaning that certain aspects of “liquidity” can be managed and so can small run customization.
It was startling because clearly what has developed there is not MAKER FAIRs … but maybe what Silicon Valley — and before that Route 128 Beltway, were in the post WWII “new world.”
Where is that in the U.S.A. today? Does it exist? Is our Fate sealed? (Cringe is probably going to cover that next?)
I think what you are saying is consistent with what I read recently. That, surprisingly, the *real* advantage Chinese manufacturing has over everyone else isn’t the low wages. It’s supply-chain flexibility and rapid turnaround times. IIRC, the iPhone could be manufactured in the USA for basically a negligible additional cost. But, in China, due to supply chain efficiency, the turnaround on an engineering change (“use a #3 screw instead of a #4 over here”) can happen in a day or two. But in the USA, it would take weeks to coordinate with all the players to make such a change happen. So you find a way to reduce the cost of materials of your product, or are forced to make a change because supply of one part dried up, or one player in the supply chain suddenly went defunct—no problem, in China, they’ll get you squared away before the report is due to your boss. That it all costs less as well is just gravy.
Of course I can’t find the article where I read that now, but I believe it was from the transcript of an episode of the radio show “This American Life”. The relevant episode was actually an apology for content in a previous episode. The previous episode dealt with an actor (posing as a journalist) who created an exaggerated monologue about factory worker conditions in China.
Google “this american life china factory conditions” leads to
https://www.thisamericanlife.org/radio-archives/episode/460/retraction
Hi, Bob-
An uncharacteristically confusing article, I have to say. Firstly, the whole transmission mechanism between decimalization and lower IPOs and small companies is very hard to understand. Are you saying that small companies are systematically undervalued right now by many multiples? That is what you imply by saying that some accounting quirk is shutting down small companies and their IPOs. But that doesn’t make sense. Despite the market friction of lack thereof, Facebook seems quite fairly valued, as probably are most other small companies. In other words, the graph you present of an infinite internet bubble is a fantasy.
Secondly, the whole connection between “jobs” and “job creators” and small vs big ignores basic macro-economics. The spending stream (aggregate demand) is whatever it is. The young Ted Turners may create thousands of jobs, but all those jobs just divert a stream of spending from some other incumbent big or small enterprise. Business competition is fundamentally a zero-sum game on this level. It is investment, both private and public, that creates net wealth and can arise aggregate demand. Right now this boils down to government spending, since the private sector is net saving. The debt bubble helped, but is certainly over as well.
So I would suggest that we are in a post-capitalist economy where, as you say, there is far, far more capital than anyone can usefully invest. Returns are zero, and new industries just don’t need much capital.. they are info-twitter-tech or big&lean business operations. That is one dividend of the information revolution- doing more with less, especially less investment and thus less growth, whether in big or small businesses, which each exist only on the flow of aggregate demand.
I guess you might say that we need some new tech innovation to call forth savings into aggregate demand- those holographic TV’s or commuter airplanes. That would be great, but perhaps the primary challenge of our time is more serious, like restructuring our relationship with energy and the biosphere, which could involve enormous infrastructure investments and also benefit from permanently lowered conventional consumer demand.
Does savings not also enter the economy through investment? Are they not opposite sides of the same coin?
If government has to step in to offset the private sector’s “net saving”, then that would equate savings accounts to the concept of stuffing money under a mattress.
More likely it’s the trickle down power effect with our feckless leaders in Washington taking their directions from the big Wall Street banks, thus overfunding them at everyone else’s expense.
Index funds were inevitable, a logical evolution of mutual funds which existed for years without destroying the small cap market. So why not an index fund for small caps? Surely they exist.
It seems to me it’s the “too big to fail” = “too big to survive” equation Bob is mentioning. Washington has propped up the big bad failures and in the process tanked our economy.
Big cap stocks were exactly the WRONG place to be invested leading up to the 2000 bubble pop. So Bob is saying they are now sucking all the cash out of the investment economy, perhaps he’s right. Highly uniform systems are susceptible to catastrophic events, even if they are more uniformly resilient to minor disruptions.
Perhaps the deficit isn’t all that bad. Washington won’t be spending more money propping up institutions too big to survive.
“the ultimate irony of policies that declare companies too big to fail when in fact they are more properly too big to survive.”
That’s a great line, I may have to use that one! Many forget that a vibrant economy is as much about disruption and destruction as it is about growth. You have to “tear down” the old to build the new. I would have loved to see what would have come out of a GM bankruptcy.
I wish someone would define the “American Dream” once and for all as small business ownership. Small businesses, mom and pop operations, are the surest way to prosperity for the “poor” and on macro level, full employment for our nation. The “American Dream” is the freedom to risk capital, work hard, and reap the rewards … or fail, learn from the experience, and start over. the same freedom to succeed is also the freedom to fail. Success and failure are flip sides of the same “freedom coin.” The risk of failure is why entrepreneurs get paid so handsomely.
Until we, as a nation, celebrate small business as the engine of our prosperity, we will continue to spiral into oblivion.
B.J.
blanejackson.com
I just don’t see it. Around 2000, there were a lot of other things happening that can also credibly explain the things you were seeing–the dot-com bust being the biggest one. I’m not a pro-decimalization guy; I just don’t see enough evidence to support decimalization as a major cause. HFT was always going to happen — dealing with 1/8th or 1/16th of a dollar is actually better for computers (see any description of how floating-point math works). It’s just I can see other explanations that make more sense to me.
1) The rise of mortgage-backed CDO’s. The returns on these vehicles were stupendous compared to their risk ratings. After dot-bomb, a lot of pension funds, etc. switched to safer investments. In the aftermath of the 2008 crash, I listened to a lot of interviews with pension fund managers explicitly mentioning their fear of small-cap companies and their desire for very safe vehicles because of the dot-bomb. Unfortunately, they got suckered into mortgage-backed CDO’s or derivatives.
2) 9/11. For whatever reason, it changed people’s expectations and they went for safety (see #1) or bigger returns (Goldman Sachs, etc.). It took awhile for that mentality to change.
3) Go Big. New companies in post-2000 seemed to either want to become Too Big To Fail or get bought out for billions. The idea of a company _making_ something or building gradually to a comfortable mid-cap IPO went out of fashion. It was all about making a big splash in the markets or getting bought out by one of the big boys. I don’t see how decimalization plays a role in that.
I can be convinced that decimalization is the “great evil”, but I need more compelling evidence.
To me, I see that the capital that used to be available to small and medium sized businesses is being redirected to higher returns on big Wall Street financial shenanigans. To be honest, that capital used to be more available in the 50’s and 60’s because government regulation pretty much made it that way. Banks used to be prohibited from making money except for making loans to consumers and businesses. With the regulations removed, capital moved from Main Street to Wall Street, and banks discovered they could make money by proprietary trading instead of using that capital to lend to Main Street.
I’d add that starting in 1998, Glass-Stegal was revoked, leading to a wave of financial companies trying to make profits by buying up banks (and each other), instead of investing in new IPO’s. Then the CDO Ponzi Scheme started in Mortgages, promising a reliable investement stream not dependent on unreliable IPO’s. Then the collapse of the CDO market in 2008 dried up 15 trillion dollars of expected value, something financial institutions haven’t recovered from yet.
Investing in IPO’s was risky, but when it sometimes generated huge profits, it was worth the risk. Deregulation of the financial industry has instead incentivized moving dollars into mergers and mortgages, areas with less perceived risks.
On the topic of Sarbanes-Oxley– a friend who’s company was recently acquired by a larger company told me that they had to get every share holder of their company to sign off on the acquisition, even if they held just ONE share. This, I’m told, is the result of a rule in S-O meant to protect the small share holders from being screwed, but it has the effect of putting one person with one share in the position of being to blackmail the entire company by holding up the entire acquisition.
According to them rules like this have made going public a real nightmare for small companies.
S-O should be reviewed. I don’t think it needs to be thrown out entirely; just evaluated and then tweaked.
If you want to live like a Republican, you damn well better vote like a Democrat.
[…] ruined our economy? September 5, 2012 — Leave a comment Cringely makes a compelling argument that stock market decimilization (allowing shares to be traded to the penny) is the primary cause […]
Bob, this article might have been convincing it was the only thing you had written in the last 15 years. Fewer companies are going through IPOs because the process makes less sense than it did in previous times.
We have all become so blinded by exit strategies and multiples that it is easy to lose sight of the fact that an IPO is meant to raise capital for a growing company. Going through an IPO means selling the company to a constantly changing group of shareholders in exchange for a pile of money when the opening bell rings and better access to credit markets afterwards.
As several people have noted already, compliance costs have made life costlier and more complicated for smaller public companies. The much bigger change is that far fewer companies need the capital infusion to grow. Particularly in the tech sector, growing companies do not have a linear growth of capital requirements.
Back in the industrial era, the major industries of the day (foundaries, railroads, telegraphs, electricity, etc) all needed enormous amounts of capital to reach greater scale. Today’s successful growth companies need far less.
You mentioned Apple and it’s a great example. From at least the NeXT days, Steve Jobs was obsessed with manufacturing efficiency and reducing the number of people on the factory floor. You mentioned that Apple and Pixar have created over 50,000 jobs. If you include Foxconn, the number has to be in the hundreds of thousands.
Outsourcing, automation and everything-as-a-service are all about reducing capital expenditure. If you don’t need the capital, why would you bother going public? Look at Facebook’s pre-IPO SEC filings. They said that they would use the bulk of the proceeds to buy treasuries. There is absolutely nothing better they can think to do with all those billions of dollars to help the business grow.
In this kind of environment, who would want to go public?
A big part of the reason why banks are being so stingy right now is due to capitalization requirements. When people default on their mortgages or other bank loans, that loss comes out of the bank’s loss reserves. Because of this, when the housing market crashed many of the banks quickly became under-capitalized, which rendered them unable to issue new loans and prompted them to quickly shedding assets (i.e. receivables/loans). The purpose of TARP was to shore up these capital reserves for loans already on bank books, not to stimulate new lending.
This is important to understand because the Dodd-Frank financial reform act, which is being phased in right now, ups the capital requirements for banks at a time when they are still suffering higher than normal losses. So at a time when we would like to see more lending to stimulate the economy, the banks are having to hoard whatever money they can get to put into reserve to meet stricter capitalization requirements
Many banks are well behind the new reserve requirements and the Federal Reserve is considering pushing the implementation date back to September 2013 to allow them more time to hoard cash (i.e. build their capital reserves).
I’m not saying that higher capital reserve requirements aren’t good, but I don’t think we will see much higher risk lending such as for business start-ups until the banks have made this adjustment.
Sometimes I wonder, won’t we eventually reach a point where we won’t need any jobs? Or at least, the number of needed jobs will be tiny relative to the overall population? Imagine many, many years in the future, and we literally have robot slaves doing all the work needed to provide every single person a comfortable middle-class lifestyle. Ignore any “The Matrix” or “I, Robot” scenarios. I don’t think we even need a singularity for this. The manufacture and distribution of all the following would be automated: energy/electricity, agriculture, home construction, furniture, home appliances, transportation devices, logistics, waste management.
This certainly seems like the trend of most businesses to me. First we automated routine gruntwork with machines and basic computer programs. We are now building increasingly smart/complex computer programs to replace the “knowledge worker” (KN). My suspicion is that, in the 1st world anyway, KN jobs represent the primary middle-class job. And as a driver of basic business efficiency (reduce costs/increase profits), we are actively working to eliminate these KN jobs.
I believe that labor itself is held to the fundamental supply and demand laws of economics. Since the Industrial Revolution, the goal has been to deliberately reduce the labor demand. To an increasing number of people, their natural personality/talents/aptitudes fall into the category of “skills no longer demanded by labor”. IOW, there is a decreasing need for labor, and what remaining labor is needed is becoming more particular.
Does someone lack ambition if all he wants is a comfortable (1st world) middle class lifestyle? I.e., nice house, two cars, food on the table, big-screen TV, Internet access, a formidable wardrobe. What if machines can produce all this for virtually no cost? If there is virtually no cost, then there is virtually no profit, and therefore, virtually no jobs: production of the basics is not enough to provide sufficient labor demand. And it seems there is ever-decreasing demand beyond “the basics”—what else is there? Or at least, what else is there that provides relatively short-term profits? Luxury?
And the bigger question is, if such a future state is possible, how do you decide who or what gets to own the means of production?
TL;DR – is it possible there is some highly-automated distant future where population is much much greater than the demand for labor?
Matt, that’s an excellent argument, but I believe it’s been made for 200 years now and doesn’t seem to have come true yet.
You’ve better read Manna by Marshall Brain
http://marshallbrain.com/manna1.htm
Perhaps this is naive thinking, but I’ve often thought that if I were interested in the formation & running of a business, I would not want to go public if possible. Yes, the sudden wealth resulting from an IPO would be attractive, but again, if the point is to *be in business*, then why would I want to be at the mercy of a bunch of shortsighted shareholders who ultimately don’t care about the business itself?
This seems to be the cultural shift that happened over the past couple of generations. It seems like people used to start businesses for two reasons: (A) To make money, and (B) To innovate in, or contribute to, a field or discipline in which they had some particular insight (i.e., to work at something that interested them).
Maybe I’m completely wrong, but it seems like these days reason B is often left out of it. Reason B may not explicitly state “Creating jobs in the community” as a consideration, but if you’re the type of entrepreneur who is influenced by reason B, then at job creation would at least cross your mind. That’s probably more than could be said of any fly-by-night investor or Wall Street monolith.
“Does someone lack ambition if all he wants is a comfortable (1st world) middle class lifestyle? I.e., nice house, two cars, food on the table, big-screen TV, Internet access, a formidable wardrobe. What if machines can produce all this for virtually no cost? If there is virtually no cost, then there is virtually no profit, and therefore, virtually no jobs: production of the basics is not enough to provide sufficient labor demand. And it seems there is ever-decreasing demand beyond “the basics”—what else is there? Or at least, what else is there that provides relatively short-term profits? Luxury?”
Pretty much. Note that the things you listed as a “comfortable” lifestyle for someone lacking ambition would have been considered luxuries (or science fiction) by your grandparents, except for the food on the table. Today, if you are willing to live a 1950s middle-class lifestyle — small suburban home or apartment, 2-3 bedrooms and one bath, one family car, one small TV, no cable, no Internet, one landline phone, cooking most of your food at home, hand-me-downs for the kids, no chauffeuring them to elite sports in the next city — you don’t need to make a lot of money to do that. Most of your salary would be going to taxes and medical costs, which are mostly out of your control. If you’re willing to live as the middle class did 200 years ago — no electricity, no indoor plumbing, a couple of rooms with one heat source, etc. — you could probably get by working a few hours a week.
But in reality, people don’t do that. They seem to expand their definition of “comfortable” to include whatever they can afford working a 40-50 hour week. Pretty soon a phone for every family member and a DVD player in each vehicle seems normal and the minimum. It’s sort of the way software bloats to use up the resources of faster hardware.
So presumably, if we get to a point where robots produce most of our basic goods for next to free, we’ll replace those costs with luxuries — only we won’t think they’re luxuries anymore. You’ll need that new Space Rover 2201 with the racing stripes, so you can take Junior to play for the Red Planet Rangers on weekends.
@Aaron B, “If you are willing to live a 1950s middle-class lifestyle… you don’t need to make a lot of money.” Indeed. Have you by chance ever heard of Mr Money Mustache or Jacob Fisker of Early Retirement Extreme? These guys basically blog about doing just that—living a comfortable, but decidedly non-luxurious and aggressively frugal lifestyle in order to reach financial independence as early as possible. Last I checked, Jacob lived on around $7500/year, and MMM’s family of three lives on around $25k/year.
Anyway, you went on to say, “So presumably, if we get to a point where robots produce most of our basic goods for next to free, we’ll replace those costs with luxuries.” But what I was trying to convey was, even those new luxuries will cost virtually nothing to produce. Of course someone will have to invent them, but once they do—the production and logistics is effectively free.
Maybe I should have used the phrase “fundamental production infrastructure” instead of “basic needs”. Think about the 3D printer concept on steroids: if you can dream it, it can be built or even mass-produced for very little money.
How many people are truly capable of dreaming up these kinds of next-generation luxuries? How many people even want to do that? And if the “fundamental production infrastructure” is available and effectively free, then how many jobs are these luxuries really going to demand?
I started this comment by talking about MMM/ERE because the concept has greatly affected my thinking lately. I am trying to modify my life to find more pleasure in free or low-cost things. Not because I’m cheap, but because I’ve personally found that consumerism really isn’t a source of fulfillment in my life. I’ve dabbled in big spending on toys and fancy things; it’s nice, but the joy quickly fades. I find spending time with my family to be just as rewarding, and costs nothing. That’s just me personally, and so the MMM/ERE message really resonates. But given the growing popularity of these blogs, I optimistically think that maybe I’m not alone in this thinking. That something between the 1950’s and today’s middle class life is simply “enough”, that it’s quite near the maximal point on the expense-vs-fulfillment curve.
Although, cynically, I have my doubts, and worry that maybe we are just a “sheeple”, prodded into mistaking “wants” for “needs”, and seeking fulfillment through ever-increasing luxury. There are people who… vehemently argue that you are a bad parent if you buy your kids clothes at the thrift store… who would be embarrassed to the point of clinical depression to be the only one on the block without three cars or a huge TV or whatever… would never consider walking, biking or even taking public transportation to work (MMM has done extensive reporting on how much cars actually cost).
I know what you mean: if we ever have self-replicating robots powered by solar energy or something sustainable, it does seem like we could reach a point where everything is made for us, and humans don’t need to do anything except invent new ideas, make art, perform entertainment, and so on. In that case, you do wonder what the non-intellectual, non-artistic portion of the population will do for a living. But then, if a living is free….. But can it ever be entirely free? As long as some services are supplied by humans, that cost will spread over the economy, and even if your house and clothes and food and vehicle only cost a dollar, you still have to get someone to give you that dollar. Maybe there would be a resurgence of personal servants — people hiring cheap butlers, maids, and nannies, who wouldn’t need to make much because living is so cheap. The rich robot designers and artists and so on could hire masses of people to perform reenactments and life-sized chess games, medieval despot style.
Star Trek geeks have beaten this one around for years. Officially, the show claimed that humans no longer used money; that they’d evolved beyond greed, and technology supplied all their needs without the need for payment. Yet the show contradicted that time and time again. There were numerous things that couldn’t be “replicated,” so someone had to make those things the hard way, and that person had to get paid somehow. You could imagine that starship officers got “paid” with adventure and fame, or were risk-takers who went for the challenge, but what about the people back home who ran restaurants or grew grapes, as seen in some episodes? Why would they go to work every morning, if they didn’t get paid somehow? There were too many human villains on the show to believe that everyone went to work just for fun or altruism.
I don’t know if anyone’s come up with a satisfying answer to the question. I tend to think that there will always be something that can’t be automated for free, and that will have to be paid for, and the goalposts of “normal comfort” will just keep moving, as I said before, and there will always be something expensive enough to strive for.
“It’s sort of the way software bloats to use up the resources of faster hardware.” Great analogy for me and many other Cringely readers. Thanks!
Ted Turners baby has become a state sponsored hore:
https://www.guardian.co.uk/commentisfree/2012/sep/04/cnn-business-state-sponsored-news
So decimalization stops the pick pockets from making an honest living so they resort to purse snatching and bank robing…
Private equity firms have been converting management fees to capital gains in order to avoid taxes…NY attorney general is investigating – I’m holding my breath…
Maybe it’s also MBAs and spreadsheets versus vision
For what it is worth, Arthur Levitt was not Chairman of the Fed he was Chairman of the SEC. In the SEC he speaks more directly to your point.
Bob For President 2016
Well, the Canadians have done away with their penny; after an extremely brief blip about doing the same thing here, it was once again swept under the rug. By eliminating the penny and the paper $1 and possibly $5 and $10 bills, we could save a not insignificant amount of money by not minting pennies and replacing paper bills with much longer-lasting coins as the Europeans have done, and along the way provide for your nickle margins.
I think the high frequency trading is a huge problem. It allows the big players to ratchet up and down and siphon off profits without producing anything, and the individual investors simply cannot play the game because they don’t have access.
That is one dumb article. A few cents here and there killed IPOs?
And shouldn’t Facebook be considered a very successful IPO, since they got more money than they were worth? How is it a successful IPO if your share price doubles after the IPO, and all the money goes to the stock buyers rather than the company cash account?
I agree with you on the first part. Jobs are created by the startups and small to medium businesses. Cut the capital gains tax, as big corporations represent old money. Capital Gains are new money.
Seriously?
I suppose you have to expect this kind of thinking to originate in one of the three nations that haven’t adopted the metric (SI) system. (The other two are Burma and Liberia). I try not to America-bash usually, but come on. (And it’s good for a laugh).
Plenty of other nations have had decimal stock trading for years and years without seeing this supposed effect. Right? Are you sure you’re not just confusing association with causation? Or just the coincident introduction in America of this system?
Fine, fine, I’m an economics moron and could have this completely wrong. But this premise seems so obviously open to criticism. Perhaps if stocks could only be traded in whole dollar increments it would fix everything.
Sabyr, the trouble isn’t that Cringe doesn’t know what he’s talking about, the trouble is that the content of his argument doesn’t make any difference. Being right or wrong is irrelevant, because the purpose of business (this blog) is to make money (gather an audience) so the more readers there are the bigger his payday – irrespective of whether any particular story makes sense or not. So the point was never to make a salient argument, the point is to say something sensationally preposterous, create that brand recognition of being “plane crazy” or whatever, and maximize the payout. It works for Cringely, it works for David Weild, it works for the National Enquirer, it works for the evening news if there’s any kind of sensational story to shock and drive interest and traffic and put butts in seats and eyes on screen.
I don’t blame Cringe for playing the same game, even for laying on the irrelevant B.S. about the Kaufmann foundation or his own parents’ work experience with U.S. Labor Statistics. When your profession is to be a storyteller, it behooves one to tell the most riveting, interesting, bizarre stories one can muster, and Cringe does spin a good yarn.
If he actually believes any of this that would be a genuine shame. If so: I suggest any of us could look at this theory as a scientific hypothesis and develop an experiment to prove or disprove it. I don’t feel like doing it, nobody else feels like doing it, we agree to disagree, Cringe gets the readership and payday for a tale well told, people like me get to think he’s out to lunch.
You might have a point, although I generally like the tech stories, plausible or not.
I am still waiting for the foil hard-drive and the moon landing. Should I stop holding my breath?
Bob, with all due respect, you don’t know what you’re talking about. If the process of destroying jobs by making things more efficient is bad for the economy, then why don’t we just get rid of the telephone system and communicate via the pony express? Think of how many jobs would be created!
First off, most of the small businesses out there are not public, and they are the bulk of the job creators. Second, new companies that have the goal of going public are usually funded by wealthy people/organizations. Once someone becomes wealthy, it doesn’t mean they will never again be responsible for creating lots of new jobs, because they can/will. They will just do it from behind the curtain. You’ve heard of venture capitalists haven’t you?
Hard to imagine a column from Cringely arguing for inefficient middlemen that require artificially high prices as a force for good. If the existing market-makers can not make money on small stocks at a spread of only a few pennies, that sounds EXACTLY like an opportunity for a disruptive, automated solution that can make money at those spreads. And designed in such a way that allows the aggregation of many small stocks to achieve the necessary volume to make a profit.
Or is that column #3?
“Hard to imagine a column from Cringely arguing for inefficient middlemen that require artificially high prices as a force for good.” Yet some would argue that that would be good insofar as it reduces the unemployment rate.
Factors that have came into play in addition to the decimalization of stocks is the automated trading which Bob mentioned in his article. One stock trading company is spending billions to install fiber optic cable to Europe so it can trade hugh (millions of shares) of a stock quicker than than other as it sees .0001 cents differences in price. There has to be very big companies to allow them to make money. Small just doesn’t work.
Another problem is naked short selling. Many small companies are driven to bankruptcy by traders who start short selling shares of companies they don’t own until the company being shorted is in default on any loan covenents. The lending institution then calls the loan and the short sellers jump in and buy the entire company for pennies on the dollar. They they liqudate it or sell it to a bigger company for a quick profit.
Three changes that would help. One there should be a tax for every share of stock traded. It wouldn’t hurt us small investors since we don’t churn our portfolios but it would stop the big traders and eliminate a lot of the volutility in the market.
The second change would make it a crime to short sell a stock you don’t own.
The third change would be a repeal of Sarbanes-Oxley. Small companies can’t afford the lawyer and accounting fees to be in compliance.
Agree with all 3 points as long as we recognize we want to forbid “naked short selling” not “short selling” since selling what you don’t own is the very definition of “short selling”. Here’s a good description of naked short selling: “Naked short selling, or naked shorting, is the practice of short-selling a tradable asset of any kind without first borrowing the security or ensuring that the security can be borrowed, as is conventionally done in a short sale.” http://en.wikipedia.org/wiki/Naked_short_selling
Decimalization did not destroy the IPO market. The changing of Title 144 in early 1997 so that initial investors could cash out on the day the IPO is what killed the IPO. This change in Title 144 was also the primary cause of the original dot com bubble.
Pre ’97 if a startup was on an IPO path you needed at least 8 to 10 profitable quarters and the right revenue curve before you seriously thought about a roadshow. Because the initial investors wanted to be absolutely certain that if they committed to an IPO that the post IPO financial stayed solid until after the initial investor lockup period had expired.
But ater Title 144 was change in ’97 it did not matter any more. IPOs became pure pump and dump scams straight out of the 1920’s with the initial investors cashing out on the first day of the IPO leaving the marks who bought nursing a huge loss.
So this stock scam collapsed the IPO market in 2000 and until Title 144 is changed back to its pre 1997 form, initial investor being locked in at least 4 quarters after IPO, the tech sector IPO market will not return.
[…] of which lead me up to plugging a column by Robert Cringely on How stock market decimalization killed IPOs and ruined our economy. I see how the dynamics he talks about could effect the economy and the IPO markets. But I just […]
With decimalization, the speed of trading has increased also, here is a great article on the High Frequency Trader and how they are impacting the markets.
https://www.wired.com/business/2012/08/ff_wallstreet_trading/all/
another article fitting the topic:
https://www.zerohedge.com/news/death-ipos-and-why-it-matters-you
Re the Wired article, I enjoyed this comment “But perhaps not even Einstein fully appreciated the degree to which electromagnetic waves bend in the presence of money.” But otherwise they just rambled on about the fact that computers are faster than carrier pigeons, so I probably stopped reading before getting to the content.
Robert X (what does X mean) till you got to “Decimalization” I thought you were intelligent. Decimalization theory is crap. You mistake coincidence for cause. Oz went for Decimalization in 1966 and the sky did not fall. And you’re fooled by a thousand graphs. (I have a theory that says USA is superstitious — still in pounds, green backs, miles, and now sixteenths for ticks — I bet USA would not accept the Gregorian change in the calender if it happened post 1776. Well global warming will teach you your stupidity and finish USA off.)
The cause was deregulation by Clinton in 1998 (?) and Bush43 being too dumb to understand the mumbo jumbo of Wall St. Speak (CDO’s – mortgages debts separated from the bank – On selling debt for income etc) and nobody (No oversight committees — Bush43 told them not to look) willing to examine whistle blower allegations. (And computer trading.) Everybody thought that money grew not on trees – too slow – but viruses. Well the Russian Mafia knew that last one was true.
And Wall St didn’t have the patience to wait seven or so years to make a profit on IPO’s that Apple took. They wanted their profits today* as in the Casino’s. And they invented crap to sell (and insure if it failed) to suck the money out of municipalities, states, insurance companies and suckers** too dumb to understand. And in the end their defense is “no due diligence” was made by the suckers — not our fault. (I could diverge and write a treatise on jurisprudence and precedence here. OR Write another treatise that would make me look racist on the same subject.) And individuals made $100 million a year selling that crap. In the end they wanted and got poor people’s money to save themselves — your taxes and Chinese largess.
Wise up Cringely the (USA) dream is over, taken over by the rich. We’re back in the US SR!
And you believe bullshit, well expect 73 virgins Cringley. You’re so dumb I’ll give you an extra virgin and throw in the Brooklyn Bridge for free!
* The 2000 internet bubble was all wishful thinking that a realist could see as needing time to succeed. Just ask Time Inc. But it taught Wall St how to act next!
And why computer trading is taking over the stock market. The big boys want their money NOW not a milli second later. Dumb $10 million is nothing and Wall St hasn’t the patience to wait to see it grow.
** ‘municipalities, states, insurance companies and suckers’ are too poor to invest now, may be even bankrupt — I have a screen saver of Nomura Research Institute’s explanation of how we get out of a ‘balance sheet recession’ — find it, read it and learn. Burnt people take a long time to play with fire again.
good articles
thanks for share!