Monday, March 9, 2009

stock market betting

I believe in a free market system. It should be designed to produce the best results for America. In terms of the stock market we need to insure it is an investment market that helps to allocate resources that produce wealth rather than a betting market. Right now we have a situation where millions of people are invested in the market with long-term solid principles, and there are also a much smaller group of people, perhaps in the thousands that are gambling on stocks. Often this is done with exotic instruments that allow the "bettors" to buy, sell, borrow, leverage, sell short, etc. all over various time periods. So for example there are people trying to make a living selling short the S & P 500 as an ETF. There are selling short and covering all in one day, sometimes within the same hour or even minutes. Now I as a fellow gambler don't have a problem with this personally, but surely we don't want a system where people's retirement money that they saved for decades can be reduced 50% in a two month period and never return back to that level in a timely fashion for them. In addition, we shouldn't have otherwise profitable businesses have to make business decisions because of a stock price that is depressed because of speculators and gamblers.

I propose we have a regular investment market, and then have another market for those who want to gamble. I accept that an investment might suffer for many reasons at any given time, but it should be orderly and truly the judgement of the market rather than the result of gamblers or speculators who are taking advantage of a short-term issue.

The government should re-instate the uptick rule, and also force people who buy stocks to hold on to them for a certain period of time before selling. The easiest way to accomplish this might be to cut taxes for capital gains of stocks held for more than a year, and raise taxes for stocks held less than a month.

However it is accomplished, the stock market should not be a casino, it should be a marketplace to capitalize businesses and for people to invest in American companies. The price should reflect the long-term value of the company rather than some short-term manipulation.

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