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The whole argument centers around the notion that people are, compensated for wealth creation. But it seems like some of the most highly compensated profession

The whole argument centers around the notion that people are, compensated for wealth creation. But it seems like some of the most highly compensated professions (short sellers, personal injury attorneys, the people who created and promoted default mortgage swaps, etc.) have absolutely nothing to do with the generation of wealth. In the case of short sellers, they actually profit off of the destruction of wealth. Furthermore, among those of us that create wealth, we are not 'fairly' compensated, not in the sense that he attacks, but in the sense that those of us who create the most wealth are very often not compensated the most. Consider engineers that invent new technologies, but the patents are owned by the companies. Consider the company that has the superior product for the superior price, but cannot compete with the advertising of the already existing gigantic corporation. Consider the gigantic corporation that lobbies to change regulations to their own benefit at the price of competition. If the market simply rewarded wealth creation, Graham would have a much stronger arguments, but the list of behaviors it rewards is an awful lot longer, and contains an awful lot more unsavory actions, than he seems to acknowledge or consider.

kiba 17y ago
Short sellers acts as signalers to the market that there is probably danger in the stock. They're not destructive as so much telling informations via price mechanism.
- rauljara 17y ago
  In theory, that's what they do. In practice they are credited with utterly destroying several companies that might have been able to survive otherwise. No one knows for sure if they would have made it, but they had absolutely no chance to survive with short sellers in the mix. The stock market often encourages a herd mentality which isn't necessarily based on reality (e.g. the dot com bubble of the mid-90's). Short sellers have a way of sending that herd mentality into overdrive.
  - tc 17y ago
    If your company is on solid footing, it shouldn't matter if your stock price is zero (that'd be great, actually; you could buy back your whole company). Your argument is functionally equivalent to saying that any number of unfunded and dead startups could have made it if only they'd gotten a $5M Series A round. They didn't because investors didn't think it was a good bet. Public companies that need cash infusions to survive face the same situation -- they are at the mercy of their prospective investors. There is nothing wrong with this.
    - abstractbill 17y ago
      Many of your best employees will quickly leave the company if its stock price falls to zero.
- ibsulon 17y ago
  The problem, however, is that this subset of the economy (banking, investing), once past the IPO stage, is basically an entire exercise on how to make paper, not how to make wealth. The system, in overvaluing short term results, is often counterproductive. (Note Costco's poor stock price versus Enron before the collapse.) Goldman Sachs was profiting billions by having access to millisecond-level trading capabilities. ( http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html http://zerohedge.blogspot.com/2009/07/is-case-of-quant-tradi... et al) This is a case of a society becoming good at creating paper, not wealth. And that is the point. Short sellers are capitalizing on the ability to create paper, not wealth.
vannevar 17y ago
Right. Nature cares neither about fairness nor work ethic. Wealth distribution is driven primarily by social networks, both at the small scale (getting work or financing through acquaintances) and the large (selling a million albums). Profitable niches open up in the network unpredictably, and are quickly filled. We look at the winners and rationalize their success, ignoring the long line of losers with virtually the identical story save for the outcome.

kiba 17y ago

Short sellers acts as signalers to the market that there is probably danger in the stock. They're not destructive as so much telling informations via price mechanism.

rauljara 17y ago
In theory, that's what they do. In practice they are credited with utterly destroying several companies that might have been able to survive otherwise. No one knows for sure if they would have made it, but they had absolutely no chance to survive with short sellers in the mix. The stock market often encourages a herd mentality which isn't necessarily based on reality (e.g. the dot com bubble of the mid-90's). Short sellers have a way of sending that herd mentality into overdrive.
- tc 17y ago
  If your company is on solid footing, it shouldn't matter if your stock price is zero (that'd be great, actually; you could buy back your whole company). Your argument is functionally equivalent to saying that any number of unfunded and dead startups could have made it if only they'd gotten a $5M Series A round. They didn't because investors didn't think it was a good bet. Public companies that need cash infusions to survive face the same situation -- they are at the mercy of their prospective investors. There is nothing wrong with this.
  - abstractbill 17y ago
    Many of your best employees will quickly leave the company if its stock price falls to zero.
ibsulon 17y ago
The problem, however, is that this subset of the economy (banking, investing), once past the IPO stage, is basically an entire exercise on how to make paper, not how to make wealth. The system, in overvaluing short term results, is often counterproductive. (Note Costco's poor stock price versus Enron before the collapse.) Goldman Sachs was profiting billions by having access to millisecond-level trading capabilities. ( http://zerohedge.blogspot.com/2009/07/is-case-of-quant-trading-industrial.html http://zerohedge.blogspot.com/2009/07/is-case-of-quant-tradi... et al) This is a case of a society becoming good at creating paper, not wealth. And that is the point. Short sellers are capitalizing on the ability to create paper, not wealth.

vannevar 17y ago

Right. Nature cares neither about fairness nor work ethic. Wealth distribution is driven primarily by social networks, both at the small scale (getting work or financing through acquaintances) and the large (selling a million albums). Profitable niches open up in the network unpredictably, and are quickly filled. We look at the winners and rationalize their success, ignoring the long line of losers with virtually the identical story save for the outcome.