Bailing the Yacht

I have some sympathy for the American legislators as they struggle with the proposed 700 billion dollar bailout of their financial system. I also have a problem imagining how much money is represented by that number. At one time, in my early years, a million dollars seemed like a lordly sum, but now it takes a jackpot of more than ten million to tempt me into buying a two-dollar lottery ticket. Those Americans are talking serious money.

However, I have little sympathy for the faceless people who run those banks and brokerage houses on Wall Street. They have smooth-talked people out of their money for years, leveraging the losers against the winners on the stock market by employing other people’s money to pad their pockets. Unfortunately, we have all been sucked into this whirlpool of ‘investing’ in the stock market. Whether it has been through our mutual funds and pensions or buying penny stocks, we have been buying into the ‘dream’ that is threatening to go down the drain.

And the stock markets have become little more than a dream, a fantasy. The majority of people who have their money in the stock market are not investors. They are speculators. Back in time, at the roots of capitalism, people bought shares in a company in the belief and hope that the company would generate funds and pay them a dividend on their shares. However, today, the gains that are hoped for are not dividends but on the increased share price or ‘value’ of the company. We trade shares as a commodity, hoping to sell the shares for more than we bought them. We are betting that someone will pay more than we did, solely in the hope that someone else will do the same for him or her.

It does not matter that the company makes a profit on its widgets, although that will encourage the marketers to flaunt the stock before your eyes. We buy on the future value of the stock, not the present since we seldom expect to hold the stock long enough to ever receive a dividend – if our shares even pay dividends! The banks bought up ‘shares’ in house mortgages, lulled into the belief that the properties would increase in value in the future. They traded these future-value shares with each other, borrowing money on the strength of - well, nothing.

In the bad old days, the bank took your money, paid you for using it, and lent it to someone at an interest rate that earned them some profit. They made certain that the borrower had the wherewithal to repay or adequate security to cover the debt. If you did not pay, the sheriff took the ranch. The banks however, could not match the earnings shown by the stockbrokers who were peddling dreams, so they joined in the fray. The house of cards finally collapsed this year as first the stockbrokers and then many banks realized that they were holding nothing more than paper promises.

As the stock markets bounced around this week, the brokers are still at it – peddling promises, betting that someone will buy high and sell low. No matter, they still get their commissions. The Futures markets are still active, people betting on the future price of something, not on whether the commodity company will ever pay a dividend. The price of oil and currency moves around as people buy and sell, bet and lose, every day. The brokers win every time.

So now the big losers want a bailout of massive size. The years of speculation and betting have made us all losers, for this will affect us all to some degree. It is one thing to have to bail out your own little skiff when the financial storm spills into your boat, but now we are being asked to bail out the yachts of the big boys in the bathtub. Maybe we have to, but let us get something in return. Maybe some dividend-paying shares or ownership of the companies we are rescuing.

Instead of giving Ford $500 million dollars for an engine plant, why did we not just buy into the company for that amount? Or, deep down, did we (the government) not think the value was there? The idea of buying into these companies instead of giving them money to create or keep jobs may smack of socialism to some, but in a true capitalist regime, those companies looking for corporate welfare would either make it on their own or their competition would eat them.

It may be too late for anything but a bailout south of the border, but perhaps those legislators who are seeking more control are right in their reticence to help those who have make bad or simply greedy decisions. I hope our politicians will be as thoughtful. Because, unlike the politicians, we are in this for the long term.