So I finally found a moment to catch my breath. And let me tell you, he was fast.
Anyway, I have about 400 blog posts that I've written in my head, but am sure that I will only capture a few of them on paper…or more accurately, digital print media.
Lately I have been thinking about how the government is buying stock in all of these banks with the hope of propping them up. They have even considered buying stock in GM and Ford with the hopes of helping them, too. Though I don't really agree with this, I understand their logic. If the United States Government is a shareholder, especially a large shareholder, then the company has to listen to them. And with the confidence of a large shareholder to restart the dolling out of credit, this will help get the economy going again.
Now, my problem is several-fold. The first - will the government plan on permanent ownership in stock of these companies? This I am totally against. The government does not belong in our bedrooms, our checkbooks, and we should not be competing with them in the stock market.
Secondly, WHEN the government gets out of direct ownership in the stock market, will it be subject to capital gains taxes? If so, what rate will they pay? I can imagine the tax form now: If you make between $5 trillion and $10 trillion, your rate is Capital Gains tax rate is 39%. And if the government sells the stock at a loss, where does the loss go? Will they deduct that from what they need to pay for Social Security?
And speaking of Social Security. Remember when George Bush floated the idea of allowing Americans to invest a portion (a PORTION) of their social security payments in the stock market? Every Lib in town went berserk. You would have thought that he wanted Aunt Mildred to put her life savings in a dot-com company that specializes in currency arbitrage. I heard from the CFO of the finance department of the Plastic Bubble Wrap Department here at American Amalgamated Conglomerates of America, that what GW really had in mind was investing a small portion, like 1-10%, of their SSI into mutual fund-based investments where risk is diminished. Because, as you know, the stock market has averaged 10% a year since I don't know when. It's not always up, but it is usually up over any 10 year period. Uncle Jesse would not be flipping option straddles under the buttonwood tree on Wall and Broad streets.
Now, no one really flinches at the idea that the government is buying stock in companies. Perhaps now that we are experiencing it, society will be less against it. And imagine if we could invest our money now while many stocks are down 50-70%. Here at AACA, our stock is down 65% in 36 days. Yikes! If there's a quick rebound, that's lots of money!
Friday, October 24, 2008
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3 comments:
Are you assuming that the government would distribute gains to taxpayers when you mention the idea of government paying capital gains tax? If the government just takes back the money itself, it wouldn't really matter because either way the government gets all of the money. Most of the things I am reading now seem to not believe that there will be a quick rebound. The expectation is that the rebound will happen in late 2009 or early 2010 at best.
s baghaii- I don't think there is going to be a "rebound" at all. Returns from investments in equities will probably be at historical averages from here on out for awhile, until the next bubble forms.
We might even go lower if a bunch of hedge funds start to fail.
I think there will be a rebound, but we're not going to get back to Dow 13000 for several years. Remember, a 50% fall requires a 100% bounce to get back to where you were.
And as far as the capital gains tax, that's all tongue-in-cheek. The government owns all the money anyway. They're just letting us have some for a while before they take it all back. We're at their mercy.
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