WMail ezine "The Stock Market Casino" Essay

The original design of the Stock Market was purely Capitalist in intention: to provide a means for business people – entrepreneurs, inventors, developers – to obtain needed investment capital, to start or to expand their business enterprises. Stock offerings were set up, bankers and other investors bought the stock, the businesses made use of the invested monies, and once an enterprise was flourishing and producing a profit, the borrowing entity bought back the outstanding stock, so that the capital could be utilized by other enterprises.
This last part of the design has largely been forgotten, since brokers quickly realized that they could make lots of easy money in trading shares back and forth. They became middlemen, in charge of the pipeline of Capital, exacting their levy on each and every transaction. Any repayment of the investment would eliminate the possibility of a levy by the brokers. The game was soon no longer about Capital, and every concern of the Stock Market became centered on traffic-flow.

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        Now, when I was in the Air Force, my home station was Nellis AFB outside Las Vegas, Nevada (plus a few other assignments, such as Southeast Asia). After I was discharged I found a job as the systems programmer for Howard Hughes, which included responsibility to design the Gaming Reporting System for the seven hotel-casinos and such that were part of Hughes Nevada Operations.
        So I learned all about 'handle' and 'drops', and random number generator programs, and designed and built a system that summarized everything, the result being a daily report that Howard read thoroughly every night. So I watched it closely, myself, to prevent problems as quickly as they might arise. (One such problem was when the dollar figures went from seven digits to eight: there was little room on the printer line, so I carefully removed a few commas.)
        I already knew that The Odds Are With The House, and soon learned that the slot machines around town were designed to pay The House an average 14% [back then], with certain areas of each casino paying a higher rate, such as near the main entrances – the clamor of the jackpot alarms are intended to draw pedestrians inside – and the hotels downtown paying a higher rate than hotels along The Strip.

Being the ever-observant fellow, even then, I soon noticed in daily perusal of the Gaming Report that the Keno games were quite volatile. [The game of Keno presents 80 numbers, from which the bettor chooses combinations of up to ten or even more numbers, with precise payouts for matches to the numbers drawn each game: 3 of 5, or 6 of 10, etc. Keno has no pari-mutuel payout like today's Lotto-type games.] The natural odds for a Keno ticket were something like 100,000-to-one, while the maximum payout for any one game was then $25,000 (since raised to $50,000 or more).
The progress of the Month-To-Date net on the Keno games was intriguing: if several tickets hit all their numbers one weekend, the results of the Keno game could go negative for the month, and would stay negative for some time. But I noticed, as the casino bosses already knew, that the dollars figure invariably showed positive net numbers by the end of the month. ALWAYS.

The casinos in Nevada are as legitimate as a human institution can be. They police themselves stringently – basically out of fear of Federal intervention, but the result is the same as if their motives were pure in heart. The casinos don't need to cheat, it is completely unnecessary, because all that they have to do is attract warm bodies with cash in their pockets to their desert oasis, and those visitors will leave 10 or 15 percent of the casino-table traffic [the 'handle'] in the coffers of the owners of each hotel-casino or 'slot den'. (This is why rooms and food are relatively cheap. The House could make that percentage if they gave away the rooms and food and drinks, which does indeed happen from time to time: high-rollers and conventioneers and others with deep pockets are 'comped' all the time.)

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        So what exactly is different in the Stock Market Casino? Not much.
        The showroom entertainment – Robert Goulet and magic acts and 'tits-and-feathers' shows – is replaced by colored graphs and pie-charts on CNN/money and in USA Today, and the clamor of the slot jackpot alarm bells is replaced by scary headlines in the Wall Street Journal and in your local newspaper's Financial Section. And everybody recognizes Alan Greenspan's ugly mug, from incessant exposure on the nightly tv news.

Brokerage houses make their percentage from the traffic, just as in Las Vegas and Atlantic City and on Mississippi riverboats. Though the internet has had its effect with lower brokerage fees, the Big Boys still charge $50 or more per trade. Notice that this daily levy is never reported in summary, just the Dow-Jones average 'on volume of x billion shares'. You will never see a report of the daily brokerage levy, that Goldman Sachs or Charles Schwab made millions of dollars yesterday (net their cost of doing business) because all those shares merely traded ownership.

The Stock Market Casino, precisely like the legal gambling dens of America, is a very simple machine. Customers bring in a ton of money and they leave a portion of it behind, thinking that they had a really good time.
Money goes into the Stock Market Casino, but one question never seems to get asked or answered: Where does all that money go? Every time that somebody wins, somebody else loses; every time somebody loses, somebody else wins their money. Money-value does not appear or disappear based on some fancy chart. The money goes in, and the money goes out. You either win or you lose – or you hold, and then you win or you lose.

The Stock Market Casino produces nothing, no actual money-value. Money moves back and forth, salary-men make a living, executives purchase bigger and bigger homes, the economy seems to move nicely – but the big money is siphoned off to the Oligarchy.
The Oligarchy makes oodles of money from the Stock Market Casino, just as they do from their holdings in legal gaming casinos. But the Oligarchy is NOT gambling. The Odds Are With The House – always and forever. You put money in the machine – whether a dollar slot or a mutual fund – and some percentage is removed, and the final destination of that levy is the fur-lined pockets of the Oligarchy.

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        The original intent of the Stock Market, as stated above, is that eventually each business would make sufficient profit to buy back the shares of its investors, allowing the investors to capitalize other businesses.
        But the Stock Market Casino is a 'Ponzi scheme'. (Named after Charles Ponzi, who perfected the scam of paying money out to early investors at a high rate, bringing in more and more new suckers, until the pile gets big enough, and the scammer disappears with the pile.)
        The stock market machinery itself cannot encourage such a practice as repayment, because there is not enough actual value. Companies like Amazon.com and America Online have negative revenue or net actual value, and yet they find enough backers to buy other conglomerates outright. Such deals are leveraged on debt, not on value.
        The silliness of the stock market has AOL/TimeWarner trading at 12 times equity value, which is considered proper. But this is going to be a problem if the investors attempt to get their invested capital back. The guys in the front of the line will make a profit, and the guys toward the middle and the back of the line are going to lose big time. Millions of people will just lose their life savings, too bad.

        I say that the U.S. economy is a Ponzi scheme because: a) America actually produces hardly anything, shown by our negative ratio of exports to imports, the Trade Balance; and b) if all of the outstanding corporate debt was called for payment, there would be nothing left – the Oligarchy already has possession.
        Simple Ponzi scheme. The worldwide Great Depression of the early 1930's had the same cause, and the next worldwide Great Depression will similarly blindside the citizenry.
        The first debt to be called will be consumer debt; inability to pay off those household debts will cause local institutions to collapse; local problems will tumble larger money-lenders in a 'domino effect', moving from industry to industry and from country to country, eventually bankrupting the Federal Reserve and the whole shebang.

The money goes in the front door of the casino – and of the stock market – and the customers return home with less than when they started. Every day, every year. From Nevada to Wall Street to Hong Kong to London. The Ponzi scheme will fall apart, the only question is when. And how much of your money disappears into the coffers and counting houses of the Oligarchy.

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        Though I expect to have little effect on world economic events, there are several possible solutions, at least at the local level: Pay off ALL your personal debts while you get out of the stock market, mutual funds, all such 'virtual money' schemes. I make no recommendations for what is safe (maybe later). If you manage a company, do exactly the same: pay off debt.
        Politically, the answer to lessen the coming economic crisis is to legislate corporate tax credits for purchase of 'treasury shares'. Treasury shares are outstanding shares in a corporation that are purchased by the corporation, effectively taking them out of the market. The new law could also allow some incentive for purchase of blocks of shares by directors. The plan is to remove the capital from the market and leave the corporate entities in the hands of the Oligarchy – the various boards of directors run the show anyway, under the watchful eye of the Oligarchy, of course.

This plan would return the stock market to its original design: eventual repayment of the invested capital, leaving an autonomous business entity with no outside shareholders to report to. There is no need for outside shareholders, since the Oligarchy owns 50% of everything in America. Make the fat cats of the Oligarchy work to make a buck, no more Stock Market Casino with your hard-earned money. By removing yourself from the Stock Market Casino, you eliminate the chance of the Oligarchy taking their percentage, whether thru brokerage fees or gaming resorts or stock dividends or consumer credit interest. If you do gain possession of your equity – a house or land or a small business – by eliminating personal and business debt, the Oligarchy cannot get their hands in the till.
Can they?

Or perhaps it is still exactly like the surprise Tennessee Ernie Ford song hit of October 1955: "You load sixteen tons, and what do you get? / Another day older and deeper in debt / St. Peter, don't you call me, 'cause I can't go / I owe my soul to the company store."

The preceding is an excerpt from Chapter 18 of my forthcoming book, "Working Minds: A Philosophy of Empowerment".

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The WMail Newsletter EssaysVolume II - Issue #18: December 2001

"The Stock Market Casino"

The WMail Newsletter Essays
Volume II - Issue #18: December 2001