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So much of the financial "froth" could be elimanated by a law that taxed taking speculative positions in a punitive way and relatively rewarded buying and holdi

So much of the financial "froth" could be elimanated by a law that taxed taking speculative positions in a punitive way and relatively rewarded buying and holding. If you compare the function of the market 100 years ago (owning significant stock mean't you had some degree of interest in the long term prospects of a company) versus today you can see the problem. Financialization of the economy actually doesn't produce much. It mostly transfers money from productive uses or away from more equitably income distribution in the population to speculators and irresponsible parties like Softbank and the harebrained ideas they invested in.

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MiroF 6y ago
> taking speculative positions It's hard to define what a speculative position is. Incentivizing buying and holding would just be intentionally make markets illiquid, which a. let's bigger players take larger profits more easily and b. leads to inefficient pricing
- morpheos137 6y ago
  There is no reason why efficient pricing of all assets is socially desirable. Efficient pricing may have a cost. Housing is a relatively illiquid market on a local basis. The way to make it more liquid would be to have people buy and sell houses more frequently. Sure we might have a finer grained understanding of what a given house is "really" worth at any given moment but what good is there in that information? Likewise what social good (as opposed to good for the individual speculator) is there in shares of companies changing hands easily and frequently? Liquidity has a cost. The cost of liquidity is instability (volatility) and short termism. Fractional ownership of a company should be a long term undertaking. Not a speculative position. Otherwise how can good corporate governance be incentivized if owners can jump ship at a moment's notice with essentially no cost? How can debacles like Boeing engineering failures be avoided when all that matters is quarterly appearances?
  - deleted 6y ago
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  - morpheos137 6y ago
    As a thought experiment ask yourself why should it be easier to buy or sell fractional ownership of a company than a house or a car? Does that not incentivize not taking responsibility for the long term prospects of a company or understanding its business? What is the proper role of owners? What is the purpose of public trading? Is liquidity and efficiency an end unto its own?
  - MiroF 6y ago
    Respectfully, I don't really feel like engaging with this conversation because it seems like we don't have the same basic starting points. > The cost of liquidity is instability (volatility) Just research it. Liquidity doesn't cause volatility, it's the opposite effect: illiquid markets lead the real underlying price to be largely different than the market price, leading to massive jumps.
manigandham 6y ago
Why is the froth/volatility bad though? You're not forced to participate and there are other investments for every risk level.
- morpheos137 6y ago
  Froth and volatility are bad if they result in a less good allocation of resources in a Pareto sense. So if net utility in society decreases because some hedge funders are skimming the financial froth rather than putting resources to productive use then yeah that is bad. For example there may be a student who is good at Math who could become a PhD physicist or material scientist and develop new materials for medical application. Instead he is drawn to wall street and spends his career optimising "high frequency trading" algorithms and pricing options. Maybe he makes more money as an individual but society as a whole is worse off from the misallocation of resources. Basically a financial sector that rewards non-productive work exerts a negative externality on society, particularly in terms of opportunity costs and mis-allocation of human resources.
toast0 6y ago
Something like if you hold for at least a year, you get about 50% off the taxes?
- PhantomGremlin 6y ago
  Sadly that doesn't work for state income taxes in Oregon. They make no distinction between short term and long term gains. And you hit a 9% tax rate at income of $8,900.
andreareina 6y ago
Isn't the lower tax rate on long-term capital gains exactly that?

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MiroF 6y ago

> taking speculative positions It's hard to define what a speculative position is. Incentivizing buying and holding would just be intentionally make markets illiquid, which a. let's bigger players take larger profits more easily and b. leads to inefficient pricing

morpheos137 6y ago
There is no reason why efficient pricing of all assets is socially desirable. Efficient pricing may have a cost. Housing is a relatively illiquid market on a local basis. The way to make it more liquid would be to have people buy and sell houses more frequently. Sure we might have a finer grained understanding of what a given house is "really" worth at any given moment but what good is there in that information? Likewise what social good (as opposed to good for the individual speculator) is there in shares of companies changing hands easily and frequently? Liquidity has a cost. The cost of liquidity is instability (volatility) and short termism. Fractional ownership of a company should be a long term undertaking. Not a speculative position. Otherwise how can good corporate governance be incentivized if owners can jump ship at a moment's notice with essentially no cost? How can debacles like Boeing engineering failures be avoided when all that matters is quarterly appearances?
- deleted 6y ago
  [deleted]
- morpheos137 6y ago
  As a thought experiment ask yourself why should it be easier to buy or sell fractional ownership of a company than a house or a car? Does that not incentivize not taking responsibility for the long term prospects of a company or understanding its business? What is the proper role of owners? What is the purpose of public trading? Is liquidity and efficiency an end unto its own?
- MiroF 6y ago
  Respectfully, I don't really feel like engaging with this conversation because it seems like we don't have the same basic starting points. > The cost of liquidity is instability (volatility) Just research it. Liquidity doesn't cause volatility, it's the opposite effect: illiquid markets lead the real underlying price to be largely different than the market price, leading to massive jumps.

manigandham 6y ago

Why is the froth/volatility bad though? You're not forced to participate and there are other investments for every risk level.

morpheos137 6y ago
Froth and volatility are bad if they result in a less good allocation of resources in a Pareto sense. So if net utility in society decreases because some hedge funders are skimming the financial froth rather than putting resources to productive use then yeah that is bad. For example there may be a student who is good at Math who could become a PhD physicist or material scientist and develop new materials for medical application. Instead he is drawn to wall street and spends his career optimising "high frequency trading" algorithms and pricing options. Maybe he makes more money as an individual but society as a whole is worse off from the misallocation of resources. Basically a financial sector that rewards non-productive work exerts a negative externality on society, particularly in terms of opportunity costs and mis-allocation of human resources.

toast0 6y ago

Something like if you hold for at least a year, you get about 50% off the taxes?

PhantomGremlin 6y ago
Sadly that doesn't work for state income taxes in Oregon. They make no distinction between short term and long term gains. And you hit a 9% tax rate at income of $8,900.

andreareina 6y ago

Isn't the lower tax rate on long-term capital gains exactly that?