Comments on: The anatomy of a sucker http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/ Sat, 21 Jan 2012 19:01:48 +0000 hourly 1 http://wordpress.org/?v=3.1.3 By: K Smith http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-241 K Smith Sat, 10 Apr 2010 11:10:42 +0000 http://www.popeconomics.com/?p=432#comment-241 In theory the idea about dividends makes sense, but this ignores the reality of why the markets were created. There is all kinds of talk about how companies want to create value for their shareholders. But this is not the primary goal of the markets. The markets were created so companies could have access to cheap capital. Unsophisticated inventors are the best source of cheap capital. This is why institutional banks run retail brokerage operations - lines of business that lose money. The retail arms of the financial houses create a source of cheap capital for their institutional clients. They make the big bucks by charging fees to float securities for their institutional clients and by making a market in the securities. At least this is how it was done in the past. Now they make money by borrowing from the Fed at essentially zero percent and turn around and make 4% by clipping coupons - no muss, no fuss. Except for the wage earner, whose wealth is evaporated away by the inflation caused by the increase in the money supply that is necessary to lend out the money at zero percent. Ain't banking wonderful! In theory the idea about dividends makes sense, but this ignores the reality of why the markets were created.

There is all kinds of talk about how companies want to create value for their shareholders. But this is not the primary goal of the markets. The markets were created so companies could have access to cheap capital. Unsophisticated inventors are the best source of cheap capital.

This is why institutional banks run retail brokerage operations – lines of business that lose money. The retail arms of the financial houses create a source of cheap capital for their institutional clients. They make the big bucks by charging fees to float securities for their institutional clients and by making a market in the securities.

At least this is how it was done in the past. Now they make money by borrowing from the Fed at essentially zero percent and turn around and make 4% by clipping coupons – no muss, no fuss.

Except for the wage earner, whose wealth is evaporated away by the inflation caused by the increase in the money supply that is necessary to lend out the money at zero percent.

Ain’t banking wonderful!

]]> By: Pete http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-87 Pete Wed, 24 Feb 2010 22:39:46 +0000 http://www.popeconomics.com/?p=432#comment-87 Pop, you are right about dividends, but somehow Wall Street convinced the public, profits were better off in the hands of overpaid CEOs and top executives. Now they reap the rewards as if they owned the company, while investors take all the risk. Pop, you are right about dividends, but somehow Wall Street convinced the public, profits were better off in the hands of overpaid CEOs and top executives. Now they reap the rewards as if they owned the company, while investors take all the risk.

]]> By: Joe Plemon http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-74 Joe Plemon Fri, 19 Feb 2010 16:15:54 +0000 http://www.popeconomics.com/?p=432#comment-74 Loved the post...my first time here, and I love the artwork almost as much. Keep it coming! Loved the post…my first time here, and I love the artwork almost as much. Keep it coming!

]]> By: Weakonomics Links: Anatomy of a Sucker | Weakonomi¢s http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-73 Weakonomics Links: Anatomy of a Sucker | Weakonomi¢s Fri, 19 Feb 2010 16:01:07 +0000 http://www.popeconomics.com/?p=432#comment-73 [...] pictures (like the one to the right). The best post I’ve read on this blog so far is called The Anatomy of a Sucker. Sounds like a post I would write. The best thing about it is it’s very much like a post I [...] [...] pictures (like the one to the right). The best post I’ve read on this blog so far is called The Anatomy of a Sucker. Sounds like a post I would write. The best thing about it is it’s very much like a post I [...]

]]> By: Tom http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-69 Tom Thu, 18 Feb 2010 07:50:26 +0000 http://www.popeconomics.com/?p=432#comment-69 Just a note on my iPhone, the zero tweets thing made it look like you had zero comments, because I couldn't read the word. Might want to change that. Nice blog though. Just a note on my iPhone, the zero tweets thing made it look like you had zero comments, because I couldn’t read the word.

Might want to change that. Nice blog though.

]]> By: The Simple Dollar » The Simple Dollar Weekly Roundup: Headset Edition http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-66 The Simple Dollar » The Simple Dollar Weekly Roundup: Headset Edition Wed, 17 Feb 2010 14:01:15 +0000 http://www.popeconomics.com/?p=432#comment-66 [...] The Anatomy of a Sucker Some excellent musings on why people fall for scams. At the end, though, I disagree – he says “not all cons are illegal,” while I’d say “most cons are legal.” (@ pop economics) [...] [...] The Anatomy of a Sucker Some excellent musings on why people fall for scams. At the end, though, I disagree – he says “not all cons are illegal,” while I’d say “most cons are legal.” (@ pop economics) [...]

]]> By: Pop http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-49 Pop Wed, 10 Feb 2010 04:40:46 +0000 http://www.popeconomics.com/?p=432#comment-49 I'm not advocating this at all. But imagine how quickly over or undervaluation problems would disappear if companies paid 70% or 80% of their earnings out as dividends. Suddenly, a lot of novice investors would start to think of themselves as company owners. And they'd see earnings growth and buying companies at good prices as the key to making money in the market. Right now, you're right that it feels like the easiest way to make money is to find the next sucker who will pay even more for a share. I’m not advocating this at all. But imagine how quickly over or undervaluation problems would disappear if companies paid 70% or 80% of their earnings out as dividends. Suddenly, a lot of novice investors would start to think of themselves as company owners. And they’d see earnings growth and buying companies at good prices as the key to making money in the market. Right now, you’re right that it feels like the easiest way to make money is to find the next sucker who will pay even more for a share.

]]> By: Rob Bennett http://www.popeconomics.com/2010/02/09/the-anatomy-of-a-sucker/comment-page-1/#comment-47 Rob Bennett Tue, 09 Feb 2010 20:55:39 +0000 http://www.popeconomics.com/?p=432#comment-47 Robert Shiller says in his book <i>Irrational Exuberance</i> that the entire U.S. stock market is a "Ponzi scheme" at times of insane overvaluation (like what we saw from January 1996 through September 2008). I've pointed this out to people on numerous occasions. The two most common reactions I get are: (1) blank looks; and (2) open hostility. I remember a comment that I saw on a discussion board when the stuff about Madoff was first coming out. A fellow said: "Oh, no! Madoff's fund is not a Ponzi scheme. I made lots of money investing with him." People think that, if they made lots of money, it's not a Ponzi scheme. But <i>most</i> successful Ponzi schemes make lots of money for at least some people (that's how you win the confidence of the others). What makes something a Ponzi scheme is that the <i>overvall</i> promise cannot be met. Rob Robert Shiller says in his book Irrational Exuberance that the entire U.S. stock market is a “Ponzi scheme” at times of insane overvaluation (like what we saw from January 1996 through September 2008). I’ve pointed this out to people on numerous occasions. The two most common reactions I get are: (1) blank looks; and (2) open hostility.

I remember a comment that I saw on a discussion board when the stuff about Madoff was first coming out. A fellow said: “Oh, no! Madoff’s fund is not a Ponzi scheme. I made lots of money investing with him.”

People think that, if they made lots of money, it’s not a Ponzi scheme. But most successful Ponzi schemes make lots of money for at least some people (that’s how you win the confidence of the others). What makes something a Ponzi scheme is that the overvall promise cannot be met.

Rob

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