Am I missing something here?

Ok. Stock prices are in many instances driven purely by speculation – people are willing to pay X because they hope to sell it to someone for Y where Y-X beats inflation + the interest they pay on the loan. This system makes money only because fresh money comes in from new investors.

Well excuse me, but isn’t that the very definition of a ponzi scheme? In fact, this applies to any popular asset-price speculation.

Ponzi schemes do well when there are new investors, and dry up when the torrent of greater fools slows down. Where did all the new investors come from over the past decade or two? From mandatory superannuation that was farmed out to unit trust funds. No wonder the US financial community is desperate for Social Security to be invested in the market. They need the buyers so they can ditch their worthless non-performing (compared to the purchase price) stock. We’ve been doing this in Australia for ages.

Underneath it all is the fact that the whole shebang is a scam played on the workers by the bosses. Where, after all, does this “stock” come from? The owners simply issue it, creating it out of thin air.

It works like this. Workers get paid. 9% goes into super. The super funds put in buy orders for stock. This drives the price up. At the uptick in price, the bosses execute the “options” which they have paid themselves with – the right to buy the stock at a set price. Of course, they don’t buy existing stock off someone else who holds it: the stock is simply created on the spot. An entry in a database. They “buy” that stock at their option price and sell it to the funds at the higher price, and the funds hold them on behalf of the workers.

The upshot is that the 9% goes pretty much directly from the workers to the bosses, who trouser it. The workers are left with “shares”, which become more and more diluted and valueless each time this charade plays out. Actually, they don’t even have shares – they have “units” in a unit trust.

It’s a scam, people.

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