It wasn’t one Frenchman’s fault

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There's a lot of what I might politely call guff being written today about the stock market fall on Monday being the sole fault of the rogue trader at Societe General of whom I wrote yesterday.

I don't buy that. Of course, on the day Societe General may have rocked the boat. But the fault was systemic, not one man's, and not one bank's.

The fault is at the core of Selfish Capitalism: a system of economics that believes that the value of a company's shares is more important than what the company does; that trading in those shares is more important than working for the company; that gambling on the result of those cumulative trades is one of the highest callings of the most (supposedly) intelligent (if not wise) in the world, and that all of this gives rise to an entitlement to rewards that allow the participants extraordinary influence over all else in society.

All of these things are a myth: I mean, there is no truth in them. That's the fault line. That's where the fault lies.

The myth is based on a misunderstanding. Most people have no clue what the stock exchange really does. For a start when I ask them they think if you buy shares in a company that the company benefits. Most are astounded when I tell them that in 99% of cases (and that's the ratio of stock trades to new issues, give or take a tiny margin) this is not the case. All they will have bought is a second hand bit of paper called a share certificate.

Most people, if pushed, also think that companies raise their capital from the stock market. They're also astonished when it is easy to show that this is not true. New entrants to the market usually sell existing capital. Those who raise new issues are usually in trouble and need to finance losses, or are simply doing share for share exchanges. Capital is raised by issuing bonds. Look at stock market data if you don't believe me.

In truth, the stock market is simply a mechanism for gambling. As much as is an horse-racing track. It has little more relevance than that. It's the fault of a combined myth that lets it assume another importance. It's a myth that has to be shattered.

And I have a simple way to do that. I would like all news broadcasters to stop reporting moves in the FTSE and other indices. They don't report the results of all horse races on the hour, every hour. So why report financial gambling?

If they did we might have a chance to look at where real, value lies. And it's not in the financial services sector, which is why the UK is in for such a bumpy ride.


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