What are we going to do about it? Part III

What can we do with the gamblers? There may be some suggestions involving elimination and mafia contracts, but let’s ignore those (for the present). We could try setting up SMGA (Stock Market Gamblers Anonymous), but the success rate of such organisations is not high. What we cannot do is to ignore them: they will not go away and will continue to disrupt all our lives.

If the stock markets were to perform according to the original idea of giving people a chance to invest in a business and participate in its success, everything would be fine. But the markets have been hijacked by the gamblers for their own greedy gains. So, how can we retain the original idea and give the gamblers a new sandpit to play in? Here’s a suggestion of how.

We could separate the stock market into two parts: one where serious investment in the future of companies takes place and the other a place for gambling?

The serious investment part, call it the ‘Investment Stock Exchange’, would operate as now: shares bought and sold on a secondary market, but shares would have to be held for a minimum period, say 6 months to one year. The price of the shares would be determined by supply and demand (as now). Capital gains would not be taxed (as in some places now).

In the gambling part (we’ll call it the ‘Speculative Stock Exchange’ rather than ‘Stock Exchange Casino’ to avoid too much embarrassment to the participants) there would be the same list of companies. Their share prices at the beginning of the first day of the separation of the Exchanges would be the same as in the Investment Stock Exchange. Participants would pay an ‘entry’ fee and there would be a minimum speculation amount, which would have to be deposited. Shares would be traded between participants causing the pricing to go up and down. The participants would stare at their multiple computer screens watching graph lines make minor fluctuations and numbers changing colour, and yell at other participants across the room or on the telephone (exactly as now).

The value of each trade would be taxed. The change in the share price on the Speculative Stock Exchange would not affect the price on the Investment Stock Exchange: so after the first day the prices could be expected to be significantly different. Speculative Stock Exchange participants could close their account at any time, and they would pay a tax based on the difference between their original deposit and the withdrawal amount. Of course controls (a word the gamblers hate) would have to be built into the Speculative Stock Exchange i.e. if the amount deposited is lost the account would automatically closed and could only be reopened with a fresh deposit: this would prevent debts through heavy losses. Automated trading (by a computer) would not be allowed.

Would this solve the problem? Sounds to me like what is known in business parlance as a ‘win-win’ situation: the Investment Stock Exchange would have much, much more stability; companies would be able to get in with their business rather than watching the effect on the share price of every cough and sneeze of the CEO; the gamblers would have free rein to win and lose large amounts of money (without any effect on the rest of us).