Re: [Pen-l] Purpose of stock market

[Bill Lear <rael@xxxxxxxxxx>]

On Monday, April 27, 2009 at 10:29:21 (-0400) Max Sawicky writes:
>OK, I'll play devil's advocate.  The stock market provides a liquid
>secondary market for stock issues, thereby facilitating the ability of
>firms to raise capital for new investment, among other misadventures.

Ok, this was basically what I had in mind, but I'm still confused: if
most capital for businesses is not raised through stock offerings,
then this liquidity is not really valuable, except to the extent that
when a person first invests in newly-floated stock, the prospect of a
liquid market would make the person more likely to invest, I suppose.

But, then, this sort of obscures the economic purpose (which I take
to be actually producing and selling things), correct?

If a person invests in a new stock, they have two options: sell the
stock or get a slice of the profits the company generates.  How many
people actually do the latter?

>I'd say it is also a machine for redistributing wealth from hapless
>middle class savers to the very wealthy.

You mean simply because the very wealthy are usually closely connected
to the institutions and thus have better information and/or get
sweetheart deals?


Bill
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