Re: An idea for stock market reform

[jackodonnell <jackodonnell@xxxxxxxx>]

Trond Andresen wrote:
>
> I am in this mesage going to air an idea for reform of stock markets. The reform
> consists in changing the character of stocks from perpetuities (financial
> claims that never mature) to "stocks that are repaid", i.e. to what we could
> perhaps call "voting bonds" (form now on, "VBs" - not to be confused with
> the excellent Australian beer with the same abbreviation.. ;-)  ).
>
> Before explaining the (hopeful) advantages of this proposal, first a
> description of what a VB is:
>
> A new or existing firm in need of fresh venture capital issues VBs instead
> of stock. VBs give dividends just as stocks do, and the dividend rate is
> decided each year just as with stocks, by those holding the firm's equity
> (i.e. its VBs). But after a predetermined amount of years, the VB matures,
> and then have to paid back at its nominal value, just as a bond. If there
> already are existing VBs that were issued at some earlier time, and the firm
> wants to float new ones (this will be the typical case), the voting power of
> already existing bonds are reduced correspondingly, so that after an
> additional float, every VB, old and new, has a voting power proportional to
> its nominal value. (As a possible modification to compensate for inflation,
> new VBs may be assigned a slightly lower voting power, so that inflation
> since the last float is compensated for. Any such modification is no big
> technical feat.)

Questions:

(1) Do existing holders of equity get to keep their present equity
positions?

(2) If so, do these VB's get the same dividend as existing equity
holders with company management deciding the portion of earnings to be
held by the corporation? [i.e.  -- if the corp. decides after selling
the VB's to retain all earnings to pay down debt, are the VB holders
left holding the bag while old equity holders experience growth in the
worth of their stock?]

(3) If not, how are they to be separated from their [and the present
legal] perception of what is theirs?

(4) For corporations not yet in existence [or otherwise made devoid of
common stock] who decides how much "equity" is to be sold after the
first round of VB's are redeemed? [i.e.  -- after the VB's are redeemed
who "owns" the equity that is then floating about? Is it disbursed among
the remaining holders, if any, of VB's? Or, is the amount to be issued
as replacement "equity" determined by some "generally accepted
accounting" method?]

(5) If all VB's expire concurrently who determines what "equity" is
needed, who is permitted to buy this equity and what price is to be paid
for the controlling votes?

<<SNIP>>
--
			-- jbod

		Tax Privilege, Not People
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