A great post to help those in doubt, understand why something is wrong with PCFG PPS:
downsideup Share Wednesday, March 21, 2012 8:17:16 PM
Re: d0lphint0m post# 115465 Post # of 115471
I was an observer/participant in the room during some of the discussions that resulted in creating the problem... then acting in the role of the lone squeaky wheel pointing out what a really, really, really bad idea it was that everyone else in the room so badly wanted to make happen. Of course, I was already seeing those changes in context of understanding the massively bad impact already entrained in the repeal of Glass Steagal, when others were in complete denial about it.
The error in analysis you're making is, first, in the perspective adopted in how you address the question... which is just another variant on the error we discuss here often enough in relation to the confusion between "price" and "value"...
Price isn't ever the relevant focus... without seeing it in relation to value... and in relation to what manipulation of price intends to accomplish in relation to transfers of value.
Looking at it from the bottom up, with company specific focus ? They didn't formulate the purposeful errors they did in the changes in the rules they crafted... (and in the "enforcement" effort that ensures the rules there are also do not really matter) specifically to target SRSR. But, they DID formulate those rules with the specific intent of targeting EVERY small issuer... across the entire market... with a design that I had characterized then as an vastly enhanced "toll taking" function... significantly raising the costs of capital for all smaller company market participants... in exchange for no economic benefit for anyone else. It's a flat out "transfer scheme"... with no rational basis or justification. The impact of "the rules" adopted with SOX includes directly raising the (equity) cost of capital for ALL small businesses... in a scheme fully intended to sap the most productive segment of the economy, at an very early stage... to transfer vastly more of the value being created from those who are producing it to those who controlled nothing of value other than the rule driven enhanced power to exercise wrongful control over access to $$$... and it's only control, since it's not even THEIR money we're discussing.
The result was that the existing artificial limits imposed on access to the market were enhanced... that cost of access constituting a "price change"... imposing a greater virtual monopoly and a less functional market... that now requires that every small company has to surrender a much larger % of itself... for much less capital... than ever before.
You clearly see the result in the impact on the economy now.
The aggregate impact, initially... was a shift from what was originally roughly a 5% to 10% taking of equity as a "cost of access to capital" being paid as a toll to "gate keepers" just to access the market. The take in that toll, as a purposeful function of deliberate changes made in the rules... was initially doubled to roughly 20%... while existing access to competition, and emergent competition, were eliminated... reinforcing the monopoly control that "the banks" enjoyed in limiting issuers access to capital.
The rich have not gotten richer at the pace they have in the last two decades because they own Goldman shares.
They've gotten richer ONLY because they purposefully altered the rules to change the "tilt" of the playing field to require a larger % of value to flow to them... for no economic reason, and for no reason other than the change in the rules... that solidified existing monopoly control over access to capital.
We don't have a free market in finance... rather than a cartel of banks that control access to the markets.
Small companies, in the aggregate, create VASTLY more new wealth and new value than large ones can... so, it wouldn't have mattered much if they'd written rules that "only" worked in further limiting market access of the "large" market stocks...
The design created INTENDED to forcibly transfer a larger fraction of all value being created, and more over time, from those with the capacity to create it... to those with control over access to capital.
It is a top down scheme to benefit those already at the top... at the expense of those who are at the bottom.
"Price" is not irrelevant in the calculus that works to enable that purposeful, large scale theft of "value"... but, you're seeing the problem exactly backwards... in thinking "low prices" in the shares of small cap issuers are a proof of their lack of market relevance or value... rather than a proof of the effectiveness of the near monopoly control over access to the capital required to enable them in succeeding... which access now requires paying extortion to pirates.
The reality is... that the technology that is available to us now makes the role of the toll gate keepers who are extorting much MORE than that original 10%, then 20%, even more now... wholly superfluous. They provide no value in the "service" they provide that has them taking more while providing less.
It is not just SRSR that is being hobbled by the purposeful errors imposed in market function... that mimic the "logic" advanced, as here by dmbao... that justifies the effort in fraud being practiced in relation to mass transfers of "value".
You can see the nature of the impact on specific issuers easily enough... when you're aware enough of the origin in the imposition of the cost structure we have now, etc.
There is no RATIONAL reason to enable the "toll takers" we have in finance who are obstructing the flow of capital... no reason there should be a monopoly or a cartel controlling market access... in fact, no legitimate reason for them to exist at all.
There is no RATIONAL reason for market makers to exist. The only reason they do exist... is because of banks exercise of influence imposing rules that require they do.
We don't need the intermediaries we have... or the rules that enable them...
The only argument they have to justify their existence... is that they help to prevent fraud... but, what we see in fact, is that their existence itself is a fraud on the market, and the ORIGIN and SOURCE of other market fraud.
So, there's not a SRSR specific issue here... but, the reality of the market context that exists, matters here at SRSR as much as it does anywhere. The impact of the changed market context we have now is as apparent here as it is anywhere. There's still the generic issue in what "the rules" are... and what they do enable... that allows callow financiers to practice fraud and extortion as a matter of routine... and allows competitors to use the market functions that exist to disrupt the proper operation of free market competition... to prevent the emergence of competition they'd rather avoid. The aggregate impact makes our markets vastly LESS efficient than they would otherwise be... if we actually had free market functions rather than monopolistic practices imposed as the core feature in the capital markets.
Long live Spring Street Brewing...
