Once upon a time there was a simple, ethical way for an honest ‘capitalist’ to earn
You would invest in a company you believed in; which provided quality goods or services
for which there was a market; which was managed by people you had confidence in.
Your investment would provide the company with the capital it needed to get started.
You would invest by buying shares in the company, and thus become a shareholder.
The company would use your money to buy whatever it needed to produce the good or
services; it employed people and earned their loyalty; it would sell to customers
and make a profit. Eventually, some of this profit would be paid back to the shareholders
as a dividend.
So if you bought a share for $100, and you received an annual dividend of $10, that
would be a very healthy 10% return.
This was an Honest Sustainable Profit.
Let’s say it was a manufacturing company. One year it sold 10,000 units and gave
you a dividend of $10. The following year it sold 11,000 units and gave you a dividend
of $11. The following year it sold 12,000 units, and gave you a dividend of $12.
You were content with this Honest Sustainable Profit, and with the steady growth
Then the following year, there was a global downtown for reasons which were entirely
outside the control of the CEO. The company sold only 9,000 units – but it still
made an Honest Sustainable Profit and it gave you a dividend of $9.
-You didn’t get mad.
-You didn’t scream for the CEO to be fired.
-The CEO didn’t panic and lay off people and consolidate manufacturing plants
to show YOU that he was cutting costs.
-You didn’t sell the shares in disgust.
This was the old model of economics, based on the actual creation of value (ie goods
and services, ie real ‘stuff’). As long as you could do so profitably, there was
no need to get anxious. And you would keep those shares for years, decades even.
You could leave them to your children, so that they could enjoy the Honest Sustainable
Profit which came from those companies.
But then, some GREEDY and CRAFTY people decided that they weren’t interested in an
Honest Sustainable Profit of around 10% per year. They decided that they wanted
to double or triple their money, in a very short space of time.
They figured out that they could sell the shares to some other individual, for more
money than they had paid originally. They would try to sell each share, for which
they had originally paid $100, to someone else for $150. In order to do this, they
had to convince the potential buyer that he would later (maybe next year) be able
to sell the share to yet another buyer, for even more money, say $200.
For this scheme to work, they had to find a reason WHY the shares would be worth
more money next year. There had to be a reason why the share price would go up.
And the reason was GROWTH.
Now the shareholders no longer cared about Honest Sustainable Profit giving them
a reliable 10% return every year. They demanded that the CEO make the company GROW,
every quarter, every year. They demanded the PROSPECT of BIGGER profits next year
and the year after – so that they could sell the shares to someone else on the basis
of this future growth. And that buyer would only buy the shares if he thought he
could find someone else who would buy them for yet more money.
Now it was no longer enough for the CEO to make an Honest Sustainable Profit every
year. He had to make MORE profit every year, year after year, to drive the share
price UP. So even if he managed to stay in profit despite conditions being really
bad, that wasn’t good enough. He was no longer being measured on the Honest Sustainable
Profit – he was being measured on the share price.
But GROWTH year-after-year meant:
Nobody asked the Earth if she could absorb unlimited growth – the economics of MORE.
And she began to feel unwell.
But this didn’t matter to these new shareholders. Once they had bought the shares
on the expectation of future GROWTH, the ONLY way for them to make a profit was to
sell the shares for MORE money. The Honest Sustainable Profit and the resulting
dividends were not going to bring any positive return. In fact, they didn’t even
care about these any more. They wanted only rapid share price appreciation and they
didn’t care what the company had to do to deliver the necessary growth – borrowing,
acquiring, over-extending itself, whatever. Healthy cash flow no longer mattered
as much as projected growth that would positively influence the share price.
The CEO was being forced to put the share price before Honest Sustainable Profit,
and he would do ANYTHING that would make the share price appreciate.
Then the GREEDY and CRAFTY people realized something.
It really didn’t matter whether: the company was making an Honest Sustainable Profit;
whether it provided quality goods and services for which there was a market; whether
it was managed by smart people with integrity. All that mattered was if the price
of the ticker symbol could be made to MOVE.
They realized that they could make money from the movement of the ticker symbol.
All that mattered now was movement of the share price.
The ticker symbol had become detached from the company it supposedly represented.
All the GREEDY and CRAFTY people needed was to create waves with the share price
of XYZ. They would then ride each wave (big and small), and jump off just when it
Eventually, the GREEDY and CRAFTY people were using supercomputers to do all of this.
The supercomputers could track share price waves, quantify the momentum, project
how far they would go, and calculate the most profitable moment to jump off. They
made the GREEDY and CRAFTY so obscenely wealthy, they became the SUPER-ELITE.
Shares would be bought and sold within days, hours, minutes, even seconds (but this
was still called ‘investment’). The supercomputers became better and better at predicting
the share price waves’ behavior.
The poor CEOs carried on running their companies as best they could, even firing
thousands of people and endlessly restructuring the business units, hoping to improve
the company’s share price. Every little bit of ‘news’ could be used to move the
share price, and with every movement, the SUPER-ELITE made some money.
During Jeff Immelt's first seven years on the job as CEO, GE's revenues increased
by more than 60%, its profits doubled, but its share price languished and fell significantly
According to one analyst, “GE’s just not sexy.”
The SUPER-ELITE then discovered that they could make money even when a share price
was going DOWN, by ‘shorting’ the ticker symbol. All they had to do was ride the
wave on the way up, jump off just when it peaked, then ride it again on the way down
by taking ‘short’ positions. All that mattered was MOVEMENT, not fundamentals.
The supercomputers (which were getting better and better) could predict and track
the waves, and calculate precisely when to jump off, for maximum profit.
Nobody gave a damn about Honest Sustainable Profit. MOVEMENT of the share price
was all that mattered. And any piece of ‘news’ which could create some movement
was snatched up and broadcast widely. A whole industry sprang up to provide this
‘news’, and now everyone was giving ‘stock tips’.
But in order for the SUPER-ELITE to ‘make money’, there had to be some money being
put into the market for them to take.
Enter Mr & Mrs SHEEP.
MR & Mrs SHEEP believed in concepts like ‘financial planning’, ‘taking responsibility’
and ‘investing for the future’. Mr & Mrs SHEEP were led to believe that choosing
shares wisely for investment would give them a long term return. But they too had
lost sight of Honest Sustainable Profit, and were confused by the illusion of share
price growth – because this was how everyone seemed to be making so much money.
Literally: ‘making money’. (This ‘money’ was almost completely detached from the
actual performance of the companies – good or bad.)
Everyone was telling Mr & Mrs SHEEP to put their money into the market, and giving
them endless advice on where to put it.
Mr & Mrs SHEEP put their money – with careful research and consideration – into the
But the market was no longer about Honest Sustainable Profit. It was about creating
ticker symbol waves up and waves down. Riding the waves was the only way to make
money – not the profit from each company. But without a supercomputer, these ‘investors’
didn’t have a chance.
They just became part of the waves which the SUPER-ELITE were generating and owning.
Ordinary people still called this ‘investment’. They still thought they were smart.
But without the supercomputers, they were just sheep.
Of course, sometimes they did make money, and it was important that they did do so.
As long as they made money occasionally, they could be convinced that this was due
to their own careful research and astute judgment – and so they would carry on ‘investing’.
The SUPER-ELITE realized that they could do the same with currency. They created
a ‘news’ industry around currency; they created a system of ‘wave generation’ in
the movement of currencies; and their supercomputers tracked and predicted these
waves to maximize profit.
The SUPER-ELITE had found ways of ‘making’ obscene amounts of money, without actually
producing anything, without providing any useful service – without doing any work.
Work was for ordinary people.
But the SUPER-ELITE made money without doing anything useful – without producing
any goods or providing any service.
And then the SUPER-ELITE became really arrogant. They found that their money gave
them POWER. They could control politicians. They could control the ‘News’. They
could distract ordinary people from noticing what was going on. They made them think
that Sports and who’s-doing-who in Hollywood was News. They made them think that
anyone who worried about the Earth was a liar and a communist.
The real news was completely lost.
They could even control the government – taking the country to war to use weapons
which their own companies designed and produced, making themselves even more obscenely
wealthy. And causing the country to over-extend itself year-after-year.
And then, in a supreme act of arrogance, the SUPER-ELITE fixed it with the President
so that they paid only 10% tax on their obscene profits from doing nothing, whilst
the regular people paid about 30%.
And the SUPER-ELITE were so clever, they used the media and the ‘News’ to convince
some ordinary people that this was all just fine.
Farmers grow food.
Teachers teach children.
Soldiers die for their country.
Nurses care for sick people (the ones who have insurance).
And they all pay about 30% tax.
But the SUPER-ELITE pay about 10% tax on their paper trading activities.
Now the Nation is in a budgetary crisis …
But the SUPER-ELITE still insist on paying only 10% tax and they (and their pet politicians)
have managed to convince many ordinary people that this is absolutely fine and the
new President (who inherited this MESS) is an evil, communist, heathen foreigner,
and it’s wrong for him to ask the SUPER-ELITE to pay the same tax as the ordinary
people (who actually work and even die for their country) – EVEN WHEN THE NATION
IS ON ITS KNEES FACING THE BIGGEST SOCIO-ECONOMIC CATASTROPHE IN ITS HISTORY.