Stock Market not a Free Market

It is no longer original or even surprising to suggest that investing in the stock-market is no different from playing on-line poker or taking a punt on the horses. The traditional moral unease that was felt towards gambling has been eroded and it is now considered an industry like any other. The assumption behind gambling, whether in the casino or in the stock-market, is that it is a game of chance, that while the organizers of the racket may be bound to profit some of us can win at the expenses of others. But just as horse-racing and other forms of sport-related gambling are increasingly being fixed by the big players, so on the stock-market there is really no chance of our benefiting because the market is in no sense free but rather controlled by those with enough money to rig it in their favour.
The myth of the stock-market is that, as with watching the form of the horses, we can become informed about the performance of different companies and can make wise decisions about which ones are likely to perform better or worse, and hence whose stock is likely to increase or decrease in value. The financial pages of newspapers and the burgeoning number of TV programmes quoting stock values—including the Bloomberg Channel which does nothing else—reinforce this myth by relating the value of shares to such events as Hurricane Katrina or the climate in the Colombia coffee fields. This creates our view that while investing in the stock-market involves risk, it also involves skill and increasing our knowledge, with the help of financial advisors, can help us make better gains with our money.
The reality of the stock-market is that it is one of many mechanisms in a capitalist society to siphon money from those who work to earn it to those who want to control an unfair share of money and power without working. Here is how the game works.
First, the big players lure the smaller investors into the market by creating the myth of equality and the idea that there is money to be made. Such capitalist mantras as ‘Make your money work harder for you’ or worrying questions like ‘Are you investing enough for your old age’ encourage us to feel that we are at risk if we have no stake in the investment market, whereas in reality the risk is as soon as we become involved.
Stage two is about creating the bubble. Here the large number of TV shows mentioned above are very useful. Earnest presenters describe the rise in a certain type of stock creating a bandwagon effect. Market watchers predict the trajectory of certain large publicly quoted companies. Gullible and greedy private investors rush to follow these trends, inflating the value of the stock, which the large investors have bought up in advance.
Stage three is the interesting stage when the bubble bursts. These releases of value are the point where nominal value created by the credibility imbued in the stocks during the second stage is translated into real value, at least for the large investors. If you are controlling enough money then simply moving it from one stock or from one sector to another will cause the value in the stock you leave to dissipate. The large investor now leaves with real value, represented by money, which he can use to buy real things or in a broad sense to exercise power in the wider economy. The small investor is left with a nearly worthless piece of paper and a sinking feeling of having been had.
Small explosions of value happen every day on the various markets for so-called financial products but there are also the periodic collapses when whole sectors that have been artificially inflated in value thanks to commentators’ hot air come crashing down, the last spectacular example being the dot.com bubble. A brief glance over the history of capitalism shows that the boom-and-bust cycle that is the real economic result of these stock-market games is its most consistent feature. But two factors are not so well known. First, that the large investors themselves create the crashes, and that the larger the size of the investment funds at their disposal the more power they have to do this. And secondly, that the large investors can deliberately create crashes and in order to extract real value from the investment markets.
For those who control enough money in the market, the hedge fund managers, speculation is not about reading the market but about making the market. If they invest sufficient money in a stock it is bound to rise in value, while the one you have invested in is similarly bound to fall. You can exercise all the intelligence you have in trying to work out how a cold winter might affect the value of Centrica; they can simply create the effect they want to maximize their return by either buying or selling enough Centrica stock.
On a personal level your response to this should obviously be to put your money in a sock or your mattress rather than in the stock-market, where reduction in value is virtually guaranteed. But the system is also disastrous for the economy as a whole. It generates all the inefficiency that typifies a capitalist economy, with viable and well-managed businesses being destroyed when they become the target of negative speculation as part of a game that only benefits investors. To guarantee the our economy can work in a stable way to the benefit of producers and consumers we need to rely on companies that are not publicly traded, and rethink the whole ownership structure in favour of mutual and cooperative models.