The Stock Market

Considering the rate of return the banks are paying, you're not going to make much money by putting everything into banks. Where do you think the banks get their money? How do you think they can give us any interest on our savings? They can't do it with what we put in. Paying to one from what someone else gives is called a pyramid or a ponzi scheme and can get the banks into real trouble. The banks make their money mostly through investments in the stock market. They do make some money through interest paid on loans, but that alone wouldn't get their assets up to where they need to be to give all their customers a good return of their savings. Also, the bank has to have enough money to make loans. The first 10 years of working, I was able to save around seven thousand dollars. The first ten years in the stock market, I had around 40 thousand dollars. The stock market is a risky business, but banks can also be risky. There is no guarantee that either is totally secure. If you want to put your money only in banks, that's all right, but investing in the stock market is what keeps our economy running and always has. Even though it sometimes goes down, it never stays down.

I think playing the stock market is for very brave (stupid?) people, Arkie. All that panic and frantic running around, living with a computer welded to you so you can be checking every little minute ... it's definitely not for me. Maybe stuffing our worldly wealth in the mattress is the way to go in the future? Nothing wrong with good, old fashioned methods of saving, eh?

The stock market allows individuals to own part of a company and has been one of the greatest wealth building "institutions" for the average person in the US and the world. The present crash was actually caused by the missguided idea expressed mostly by liberals that everyone should own a house whether they could afford one or not. This led the the subprime mortgage market where people were getting loans with no down payment, no job, etc. Eventually this caught up to the companies that had been persuaded to buy these loans and to the greedy ones who made them and sold the loans to more reputable companies. There were people with no jobs being allowed to buy over $300,000 houses with nothing down and with an adjustable rate that would increse soon and then these people couldn't understand why they couldn't make the payments, after all the liberals had told them it was there right to own a home whether they could afford it or not. This has hurt many responsible people who lived within their means, saved to buy a home and to invest and now have seen much of their saving wiped out by the market being dragged down by the subprime mortgage mess.

Taking a company public...selling shares in the open market...makes the shareholders part owners of the company and is a better financial choice than a loan because the company does not have to make monthly loan payments. Instead, the shareholders are paid yearly dividends out of any profit the company earns. If there are no profits, there are no dividends. The stock market is necessary for the buying and selling of these shares. The system is set up so that stocks can be bought and sold easily and quickly. While there is risk involved the benefits can be great if you buy a stock at a low price and the company does very well, increasing the price of the stock to interested buyers and increasing the value of the stock that you own. Putting your money in the bank is by all means the safest way to go but, if the stock market ceased to exist, millions of companies around the world would fail because they would be unable to raise needed funds. Despite what you may think now, the stock market does not crash every few years. It has ups and downs...and right now we are in a very down cycle...but our current problems didn't start with the stock market. It started with inflated property values in the real estate market and lending institutions that wrote adjustable loans to people who would not be able to repay them when the interest rates increased.

You have a strange idea about how money works. Money is not backed by gold anymore, it is backed by economic activity, mostly the stock market. The stock market allows for distributed ownership of companies that you talk about. The ownership of a company is always a risk so people have to weigh risks against gain. Usually if you want a small return you put it in the bank. If you want a large return you can invest it in stocks and bonds, and with the chance of rewards there comes chance of loss. The latest recession happened because President Clinton required the banks to lend to minorities that normally would not have got a mortgage. These no assets, no job mortgage loans were also inflated beyond the value of the house. The old rules worked well but the new ones did not as it required so much load for so little house.

Arkie69, you have brought forth a very useful issue for discussion.I do agree with some of your ideas, but pls don't blame the stockmarket altogether. Companies float shares so that you and I may become a partner in that company.It is a good idea to own shares in good companies.There is scope to earn more than what you earn by putting your money in a bank.of course you must chose sound companies.The trouble is not there. It is when I become greedy.I want to become rich quick.I buy today and wait for the share price to rise so that I can sell it and make profit.There are people who deal in shares on daily basis. One can study a company or an industry or trade and understand its future prospects and decide to buy shares for certain length of period.That generally does good.But speculation is what does the most harm.The many forecasts and studies of stockmarkets are mostly fallacious.People lose their money depending on these erroneous speculations. Another point I would like to add here is that the govenments in most cases are supportive of this speculation and the share market.The rise in the price of oil is caused mainly by speculation internationally.The rise in the essential commodities like rice,wheat,edible oils etc. are mostly due to speculators only. The govts can stop it but they don't and will not. There is an ubholy relationship between this big speculators and the ministers and Party leaders who run the govt.We in India have seen it and are still suffering the result of this unholy alliance. The number of people who deal in shares in our country, or for that matter in any country, is very small compared to the population.But the govt. and the newspapers---which too are owned by the big money---give undue importance to the sharemarket.You might have noticed how the govt reacts when there is a sharp fall in the share-market. They --- the ministers--- behave as if the heavens are falling.They dont care when the prices of essential goods show a sharp rise and make the commonman suffer.