serious question: who profits the most from investment...

[mike_c]

...in things like mutual funds, the stock market, and etc? Individual investors/shareholders? The investment banking industry? Investment brokerage firms? The corporations receiving the investment capital, and ultimately, their top executives?

I ask because I think this is a huge question that needs to be addressed in regard to the Bush administration's desire to make billions of Social Security Trust dollars available for "individual investment." Let me freely admit to a high degree of economic ignorance here, but I suspect that the hidden agenda-- and I have no doubt that there is one-- centers upon who really profits the most from investing that money. In particular, to what degree are corporate profits driven by investment dollars, i.e. what is the average dollar response of corporate earnings to every investment dollar infused into their operating budget? Will the real winners of Bush's SS investment plan be the captains of industry who run the Fortune 500 companies? If we follow the money, where will most of it likely end up?

I'm asking this seriously, as someone who knows little about big finance.

[aden_nak]

1. Stock brokers would make a fortune on his plan.

Because transactions would all happen individually rather than as a collective. If it were more profitable to perform small, individual transactions, large corperations would so so. But quite to the contrary, the system is set up (much like anything else in the financial world) to penalize those who have small sums of money and reward those who have large sums of money.

[RoeBear]

2. To be honest

the person who profits the most is the person who is investing the money.

[nodictators]

5. Oh Sure! At Enron, the investors made out like bandits.

And Ken Lay's wife took to the airwaves on NBC's Today to bemoan their poor economic situation. See!

And with the dotcoms, it was the investors who walked away with a bundle (of "wallpaper" as it turned out). The Wall Street boys were describing the stock they sold to those investors with scatological terminology. They must have taken big losses, eh?

And Bill Gates must be near poverty, while those who invested in Microsoft... Well, you get the idea.

[leftyandproud]

7. ONE out of 30,000 public companies.

The vast majority of businesses make their money honestly.

[PROGRESSIVE1]

6. But why should I have to pay such fees to get MY MONEY?

The only "crisis" with Social Security is the one that Propaganda Minister KKKarl Rove is making up!

[RoeBear]

13. What fees?

Stock transactions can be done for 8 bucks or less.

[leveymg]

16. $8 is about a quarter of the current value of an average share on NYSE

- and equal to value of three shares on the NASDAQ. That's a prime reason why reasonable small investors buy and hold and don't day trade. The house usually wins on the road of random walks.

Trading costs aren't cheap. We shouldn't encourage the sheep to sell their wool just before Winter.

[RoeBear]

24. Who in the world would suggest

day trading with your retirement money?

[bryant69]

10. In general yes

In a program like this (social security privitazation) it's easy to imagine a set of circumstances where the financial institutions make a ton of money and individuals don't.

Somebodies going to lose at the stock market game, but win or lose, the financial institutions will still get their cut.

Bryant
Check it out --> http://politicalcomment.blogspot.com

[sui generis]

3. investors profit the most

followed by the companies they invest in, then the brokers and other middlemen.

That is also to say that if you dump 2 trillion dollars into the economy you will create massive investment bubbles, inflation, a superheated volatile economy, and the brokers will continue make money regardless of whether anyone else continues to through the inevitable collapse.

[RoeBear]

14. "followed by the companies they invest in"

Not sure I understand.

[sui generis]

22. on edit: successful investors . . .

remember that private equity and mortgage banking sits in this mix.

[cthrumatrix]

4. it's bigger....it's called "propping up the market". Big companies have

pension funds that require a 6-8% return...otherwise they are underfunded.

The US deficit is bad...our budgets are bad...the dollar is weak. The market needs a "longterm shot in the arm" to save big companies and the shell game of "solvency" when the US citizens have no money to invest.

[mike_c]

8. that was another of my questions....

What would be the overall economic effect of investing a portion, say 10 percent, of the SS Trust into the general economy? Who would benefit the most?

[leveymg]

9. The biggest market of all -- the "repo market" -- is the least known

Actually, this market facilitates "repurchase agreements". That's the exchange set up by the major banks for trades in low-risk, marketable US securities - T-bills, T-bonds -- these debt issues are traded for short periods among big portfolio managers to balance out their hedges. A "repo agreement" is kind of like a leasing agreement. The volume of trading in "repos" dwarfs the direct sales of bonds and stocks. Nobody hears about it, because only the big banks (and a few others) have large enough holdings of these bonds to make a profit in that market.

Profits from the repo market which operates out of the Open Market window of the NY Fed Reserve Bank keeps the 10-20 biggest U.S. banks afloat. These institutions like issuances of new federal debt because new T-bills coming onto the market guarantee trading liquidity. Obviously, the conversion of the SS Trust Fund (which are non-tradable bonds) into tradable issues would be a short-term boom to the profits of these big banks. Problem is, the underlying bonds would likely be devalued. This is why Greenspan has not been very gung-ho about SS privatization schemes.

[ProfessorGAC]

11. Mostly Brokers And Insitutional Investors

Remember there is a fundamental microeconomic issue at play here. The market is only poised to absorb so much investment money. The stocks there are only worth so much, on an absolute basis. The key is supposed to be "betting" right that certain companies' performances will drive higher value, thus higher prices.

If, however, tons of new money goes flodding into the markets and there is no change in the business status of the companies making up those salable shares, then we have additional money chasing after an unchanging value volume. This is exactly how inflation is normally described in simple terms, apropos price.

So, existing holders of large blocks of stock make huge profits selling overvalued holdings, and brokers make tons of money by facilitating these transfers.

The problem for the buyers, though, is that the price alread exceeds the value. So, the growth rate will not be what it was under normal market conditions. Hence, the 8% year growth of stock market value touted as the reason to do this never materializes.

This is a huge shell game being developed for two reasons: 1) It will hyperfund the big brokers and big bankers and they will get their repayment for supporting the neocons, and; 2) Despite the fact it has been a success for 70 years, and will be so into the future, they have a irrational ideological hatred for all things New Deal. This is the wooden stake to its heart.
The Professor

[mike_c]

17. thanks!

eom

[Blue Wally]

12. As more money....

chases the same number of shares of stock, there will be an uptick in the stock market. Current stockholders will see their portfolios jump.

[leveymg]

15. Your model assumes a closed system

of more money chasing stock prices up. But, the Dow is a macroeconomic indicator not just an index of 30 stocks. Remember, the conversion of SS requires the conversion of trillions of US Dollars worth of currently untradable shares of gov't bonds. The US Treasury would have to take on an equal amount of new debt (or raise taxes) to cover the cost of conversion.

What do you think that will do to the value of The U$D and dollar-denominated assets? That's not creating new value, just taking from Peter to give to Paul, with the money changers making a huge windfall for providing their "services." Don't you think those who currently hold US-denominated assets will see through this shell game? They'll sell off, and we'll end up with a pile of devalued assets and a ton of new public debt. That's a prescription for vicious inflation and Depression in my book.

[mike_c]

18. is it possible that some people will make out like bandits...

...under your scenario? I'm convinced that Bush's plan is based partly on his naive confidence that investment income is superior to earned income, and partly on a hidden agenda whereby someone other than individual Social Security retirement investors makes a bundle of money.

TIA for bearing with my ignorance of finance matters.

[leveymg]

21. Of course! No matter how much it hurts us all, those who play the game by

BushCo rules must be rewarded. The others are unworthy of grace, and the devil take the hindmost, particularly those elderly SS retirees - W's credo is just rehashed Calvinism.

You understand perfectly how the way the game works.

[K-W]

19. The more money you have, the better investing pays off.

Corporate elites and the extremely wealthy who own most of the capital in the country make out like bandits. Smaller investors do well, but risk losses (something most corporate elites and the extremely wealthy are shielded against)

[ChairOne]

20. Read the article.....

http://punditician.blogspot.com/2005/01/you-wanna-know-what-social-security.html

Enjoy!

[leveymg]

23. Read Lowenstein's NYT Mag Article - Enjoyed!

Good stuff. Thanks.