Forgive my naiveté with some of these questions. I have some fundamental ethical questions about stocks and bonds.
I have doubts that either stock or bond investing is ethical. From what I understand the only time a company receives money from sales of its stock is with an IPO, otherwise stocks are like used books in that when purchasing a stock you are purchasing from the individual who owns the stock not the company. So how can the company plow stock sales into the company if it does not receive the proceeds, and why would a company care what its stock price is after initially selling its stock? Wouldn’t the original stock owners object to further stock sales because doing so would dilute their ownership and dividends? Isn’t stock buying mostly betting on prices and future dividends rather than investing?
How much control do shareholders have over management? Don’t shareholders command most power in a company? Socially responsible investing is based on the principle that shareholders have power over management decision making, but even if shareholders more or less control management and thereby are able to make the company run ethically if they choose to they are reaping profits which they have not earned and that are not going to the employees who earned them.
Bonds are sold in place of taxation. There’s nothing wrong with taxes. We need schools, hospitals, roads, police, etc. It just depends on who is taxed, how much, and in what way and how the money is spent. Most bonds are sold to corporations and wealthy individuals. The interest they are paid is from tax revenue. This is a shift of wealth from the government to the wealthy and big business and makes the government more beholden to private power by being indebted to them. Thanks for any replies.
Comments
Can you expand upon the ethical aspects and your doubts?
You haven't linked your questions/comments to ethics and your doubts.
Thanks
Regards,
Ted
...But if you want to survive....... It's the "only game in town." So, in the end, there's no escaping it. At least not HERE in the USA. Everything I read tells me that Denmark and the other Scandinavian countries have a much better idea about how to operate.
https://www.facebook.com/photo.php?fbid=441971712601827&set=a.278989962233337.1073741829.263803127085354&type=1&theater
If I don't actually work for the "company" I can support the company with my wages/saving by bonding the company my money to help them grow. I also can buy shares in the company by paying the market price for stock in the company...maybe from the worker who "earned" his or her shares by adding value to the company share price and therefore the companies stock's value.
What is unethical, in my opionion, is naked short selling shares of company stock...maybe even High Frequency Trading of stocks. These are the activities that need to be policed by someone other than the foxes.
You are correct about stocks, the original premise of investing in the company directly and sharing in its profits is no longer true for the most part. It is more of a derivative on the performance of the company with the returns coming from betting against each other. Companies can also exploit this to monetize the ownership of insiders and employees from the inflow of money. This will continue as long as people are making returns on their capital. Get an extended bear market and all of these will then be discussed and highlighted. Stock ownership is no more a way to influence the company (unless you are Carl Icahn) than ownership in an ETF is a way to influence its design and composition.
Regarding bonds, you are referring to Treasuries only. Corporate bonds are different and purchase of individual bonds are actually the most direct in being related to the company needs. Company borrows money from you and pays you an interest for that loan. When you buy bond mutual fund, you bring in the aspect of betting against other investors and getting returns from the flow of money than just returns. It is a legalized form of gambling just like equity markets despite all the rationalizations.
Use of treasuries is simply the means for the Treasury to manage their cash flow for the spending by the Govt of their revenue and so not a problem ethically or otherwise on its own. What you are pointing to is a problem with Govt policy for which there is no simple answer.
Any return on capital favors owners of that capital. By definition, this implies a transfer of wealth to owners of capital. A "fairer" system is when the returns on capital and labor are in equilibrium so that there is good mobity between the two but we are in a period where capital has managed to subjugate labor by both ethical and unethical means so that the returns are enhanced.
Part of your investment in the equity markets is to fund that move to increase the return on capital in any way possible without you getting your own hands dirty to speak, so yes, it could be considered unethical in a way but you will find most people have compartmentalized this into something that they don't have to think about so they can benefit from the return on capital.
Profits occur when the products produced have greater value than all the resources used to produce them possess according to the people who use these products and resources. Profitable decisions increase the welfare of society as a whole. Unprofitable decisions decrease the welfare of society as a whole. Socially responsible investing is profitable investing; socially irresponsible investing is unprofitable (wasteful) investing.
I should point out that this is true only when cooperation (voluntary transactions) are involved. It is possible for violence to create a situation in which profitability is not a sign of socially productive behavior. For a 19th century example, property can be seized violently by government and then given to government cronies who use it to build a canal. The canal may be profitable because the original costs of buying the land it is built upon was borne unjustly by the original owners who were robbed of their land.
Alas, going to the 19th century was an attempt to keep politics out of this, however bonds being sold are examples of voluntary transactions while taxes being collected (seized) are the results of violence. If a society needs something then it will be provided voluntarily by way of transactions (exchanges) between those who provide the goods and services and those who use them, with both sides benefiting as explained above. If these things are 'provided' violently, then at best only the party imposing their will upon the unwilling party will benefit, and in the long run due to the destruction of the economy no one will benefit. Your phrase, "it just depends" manages to cloak many disastrous consequences.
I should add that this is a system in which those capable of using resources efficiently for the benefit of society prosper and receive greater amounts of resources to direct as a result while those who waste resources suffer losses and lose their ability to direct resources as a result. If this system is sabotaged by governments which make sure large political cronies (too big to fail) which waste resources (suffer losses) do not lose their ability to direct resources as a result then the system does not work for the benefit of society as a whole. I should also mention that non-governmental thieves have the similar negative consequences.
I hope I haven't shocked anybody.
How the Economic Machine Works:
Well-stated. I would add that it is not just new, recent opaque "instruments" that assist the people who drive the money from thinking about the fact that there is hardly a thing more tightly connected to issues of ethics than MONEY. Markets don't have a conscience. But people really, really should. There is little evidence of it, anywhere, sadly. Especially from those who drive the Markets.
You should tell the folks here that you are from the UK, so your ethical perspectives are socialist influenced.
Regards,
Ted
http://www.theguardian.com/environment/earth-insight/2014/mar/14/nasa-civilisation-irreversible-collapse-study-scientists
"... accumulated surplus is not evenly distributed throughout society, but rather has been controlled by an elite. The mass of the population, while producing the wealth, is only allocated a small portion of it by elites, usually at or just above subsistence levels."
Anybody see a moral/ethical issue here?
Pope Francis I: "... unfettered capitalism is “a new tyranny... Unequal distribution of wealth inevitably leads to violence." Anyone remember the French Revolution? "Let them eat cake."
There's never going to be complete equal distribution of wealth, nor should we expect that. But most people are working their buns off for peanuts these days.
Have to say I'm impressed with this Pope @Crash, but I think a (the?) big issue with CEO pay these days is the fact they every new hire has to be above average, and must be paid above their position's average salary. This leads to ridiculous salary inflation as companies churn through them.
Regards,
Ted
True, true. And perhaps this sincere-seeming and eloquent querier is actually and only a bad person.
Regards,
Ted
Regards,
Ted
Boiled In Oil:
Regards,
Ted