The Origins of the Stock Exchange (Part II)

In 2011, tens of thousands of people held protests and sit-ins in front of stock exchanges all over the world as part of the “Occupy Wall Street” movement. Montreal was no different.

In 2021, protests began again in New York, this time under the banner “Re-Occupy Wall Street.”  Let’s go back in time and see how and why stock exchanges came to be…

By Raymond Viger 

The Stock Exchange: A Tool of Perversion

The abuses are all very tempting. The capital gains made on stocks are taxed at a far lower rate, if at all, compared with employment income. This quickly becomes a method of tax avoidance. Moreover, when an executive exercises their option and buys stock, it’s the executive that collects the cash. The executive is basically passing on their stocks to the average citizen.

The exorbitant salaries of upper echelon executives aren’t paid by the business, but by the average stock owner trying to set some money aside for their retirement. I have a lot of trouble understanding why these salaries aren’t paid by the business in money, but are paid in stock options.  I have even more trouble accepting that these corporations collect money from the sale of stock options.  Having an employee is supposed to mean you have to pay for them – not make money from them!

The executive who knows their business well, and who knows they are going to sell their stocks and options, will do all they can to maximize the value of the business at the time that they sell their options. The long-term health of the enterprise is no longer under consideration. All the thinking is short term, even if it means mortgaging the company’s future.  Is the average citizen who buys a stock hoping it will go up over the long term being scammed?

Even if stock options respond to an honest need to hire good executives and evaluate them on the basis of their performance, we’ve quickly created a generation of top executives who think only of their company’s short term value, ready to sell out the long term for a quick and tidy profit.

Prime Scandals

In the 1990s, it was total euphoria. The financial bubble got bigger and bigger until, in 2001, we ended up with the Enron and Worldcom financial scandals. Following the abuses provoked by stock options, new regulations were voted in by the American Congress under President George W. Bush. After that, regulators were less and less liable to accept iffy stock option practices.

Despite all that, in 2006 another financial scandal blew up. Companies were pre-dating their options, changing the date of issuance to the date that their stock’s value was at its lowest, without telling shareholders.

Erik Lie of the University of Iowa studied the stocks owned by the upper executives at 7,774 businesses between 1996 and 2005. His research estimated that  29.2 % of the corporations studied, 2,200 of them, changed the date on their options. And Erik Lie underlined that he’d only found a minority of the culprits.

According to Lie, another trick was for executives to sell off their stock options immediately after making a good news announcement for the business. And who decided on the timing of these announcements? Why the same executives who cashed in their options just afterward!

Other stock manipulations cost average shareholders dearly. The brokers, the intermediaries between sellers and buyers, are paid a commission on all purchases and sales. Their priority isn’t always the financial well-being of their clients, but the purchase and sale of as many stocks as possible to make larger commissions.

Speculators are everywhere. Even inside the banks. Attracted by easy gain, we find lots of scandals involving commercial paper and other speculative illusions…

Occupy… The Stock Exchange

In 2011, citizens occupied spaces on Wall Street and other financial institutions around the world. Montreal had its own sit-in. Even though the stock exchange was created to support our society’s economic development and employment, its true objectives were perverted at the hands of speculators and profiteers. Because no matter what laws are enacted to keep the stock exchange clean, speculators, like snakes, will find their way through the loopholes.

The number of victims of these speculators is still bigger than those we saw sitting in at Wall Street and the world’s other financial institutions.

Have you reserved your seat for the next sit-in?

Updated from Raymond Viger’s blog, April 5th, 2012

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