I understand the concept of IPO's, etc. I'm talking about the secondary markets. Let's say there's an IPO, and 100 shareholders. If one of those shareholders wants to cash in, he has to either convince one of the 99 other shareholders to buy him out, or he has to find some new chumps to take the stock off his hands. Now, if he wants to sell the shares for more than he paid, the odds are probably stronger he'll have to find new chumps. On a broader scale, since everyone wants to sell share for more than they paid, they need to find 'new' people to buy them (that's the Ponzi part), and they have to hype it up to make them want to pay more. That's where the 'analysts' come in - their real job is to instill 'market sentiment'.

The other part of the stock market that bugs me is the gambling. I don't see much of a difference between a short sale and truckin' down to the local Indian casino, although I think you'd get a better shake at the casino.

And then you have 'derivatives' you make one or more 'new' securities by re-arranging existing ones. From what I've read, there were derivatives that were leveraged 32:1 That's like using my 911 and M3 as collateral on one loan, my M3 and split bug on another, my split bug and 23-window on another, etc, etc. No sane banker would let me do that, but in the stock market, apparently nobody thought twice about it.

In the stock market, there is (or at least there is supposed to be) a real business behind the shares. When one shareholder who bought from the IPO sells his shares, he is selling his interest in the business.

In a Ponzi scheme there is no "asset" behind the "investment" -- the Ponzi scheme operator is just shuffling "investors" money -- and pocketing a good portion of it for himself -- until the scheme eventually collapses.

In a legitimate stock trade, there is no "chump." In legitimate stocks the goal is not to "just sell at a higher price," but to share in the profits of the business in the form of dividend payments.


Yes, in the stock market today, the attitude of "investors" has become one of "gambling." As I mentioned earlier, few go about investing with an analytical business mindset -- and those that do, are often "battered" by the "ignorant masses" jumping from one "hot stock" to the next.

As for short selling -- in the recent market, it has been the short sellers who have been the most rational actors in the market. They analyzed the situation, understood the ridiculous excesses in valuations, caused by the "ignorant masses" gambling with their savings, and positioned themselves -- by selling short -- to profit when rationality returned to the broader market.

Of course, this past year, the shorts sellers (including myself) have been severely battered by the actions of effectively criminals in the government. People like Henry Paulson and Ben Bernanke have used taxpayer money to artificially "prop up" the value of stocks, when those stocks should have sold off dramatically. Essentially, the irrational (and criminals in some cases) have been rewarded, while the most rational actors -- those who could see the craziness in the markets -- were punished when they tried to position themselves to profit from the eventual correction the markets needed to experience.

Imagine if you had researched Madoff, realized that he was running a scam, positioned yourself through some investment vehicle (if one were possible) to profit when the scam collapsed, but then, when it was about to be exposed, the government stepped in and gave Madoff billions of dollars so that he could keep his fraud hidden from his "investors." This is exactly what has happened with the bailouts of Bear Sterns, Goldman Sachs, Citi Bank, etc. -- these firms have mismanaged money (most stayed just "within the letter of the law" so they aren't quite like Madoff) and lost literally trillions of dollars. Rather than allowing the "fraud" committed by the major investment firms to be exposed, the government (most specifically, Paulson, who orchestrated massive fraud when he was heading up Goldman Sachs) funnels taxpayer money (and newly "printed" Federal Reserve money) to hide the losses from the public.

As for "derivatives" -- most of these can be legitimate investment vehicles. Most represent "leverage" and as is always the case with leverage, can make you a lot of money when one is positioned properly and can lose you a lot of money if one is positioned wrong.

The problem we have seen recently, is that those who were positioned improperly in derivative transactions, couldn't handle their losses, but yet again, the government stepped in and bailed out most of these firms who entered positions they never could actually afford to take in the first place. (AIG)

This was the situation at the major investment banks: When they were right (in previous years) they kept all the profits. When they were wrong (in this past year) the U.S. taxpayer got all the losses. This is not the way the stock market and related derivative trades are supposed to work; this is big business in bed with big government, with the U.S. taxpayer footing the bill in the largest swindle in human history!