Is the US economy based on gambling? Observations by Einar Stefferud:

The double taxing of dividends makes it stupid for any company to pay dividends to shareholders, because up to 60% of dividend money goes to the US Govt as income taxes. This provides a strong incentive for companies to not pay dividends. It hurts their stockholder inventors and it hurts their stock price too.

But, long term, since stocks do not pay dividends because doing so is stupid, how can anyone ever get any return on any stock investment. Any per share money payment is classed as a dividend in any case! And taxed both before and after disbursement.

Now, I ask: What is the incentive for buying any stock that does not pay a dividend?

Right! You got it! Buy low, sell high!

You have to sell it to get your return, and to get your capital back! You just bought a pseudo .com or tulip bulb lottery ticket.

This creates the Investment Rule that is called the “Greater Fool Theory“! “Buy at some price and later sell it to some fool who thinks it is worth more than you paid for it! This is the only way anyone can gain any return on non-dividend stocks. Some buyer has to buy it later AT A HIGHER price.

Now, this reminds me of an old basic idea from Economics. No one (in their right mind) ever pays more for anything than they believe it is worth at the time of buying. Buy High, Sell Low is a well known bad idea.

So, this is now the foundation of our stock market. Shades of the Tulip Bubble. The entire game is just an extension of Las Vegas and Atlantic City or our state lotteries or our vast array of Indian Casinos.

And this is the capital investment foundation of our economy! Who would have thought we could collectively be so stupid?

From: Einar Stefferud
Date: Fri, 07 Mar 2003 14:46:43 -0800

[Interesting People mailing list]

Stock Market as Big Con: “Enron even had show-rooms filled with fake traders that they staffed when the press came on tours” –

In traditional “Big Con” grifts, the roper and the inside man work to convince the mark that by participating in some bit of harmless larceny, he will become immensely wealthy. The mark gets sucked into the scam and is eventually fleeced of every cent he can lay hands on.

… Analysts, bankers, VCs and snake-oil salesmen created an enormous con — Enron even had show-rooms filled with fake traders that they staffed when the press came on tours — that led millions to believe that there really was money to be had in playing the markets. And there was — their money. They got had, and the grifters did the having.

[Boing Boing]