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Buying Stock Makes You A Lender, So Isn't It Time To Start Acting Like A Bank?

By       Message Aaron Sun       (Page 1 of 1 pages)     Permalink    (# of views)   No comments

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With all of the talk of exploitation and proposed reforms of the financial system, there's one aspect that has not been discussed, one which is a fundamental part of the inherent unfairness of the current financial system.

Consider the following: For most of us, when we borrow money we obtain a loan from a bank or another institution. And to get that loan we have to sign a contract and obligate ourselves legally to pay back that loan plus the interest and possibly provide other guarantees such as collateral. In short, the bank is almost guaranteed to get their money back, both the principal amount and the profit they expect to make. In fact, given the way most bank loans are arranged, it's almost impossible for the bank to lose money.

Contrast that now with another loan: The one that average people make to a company every time they by stock in that company. When publicly held companies want to borrow money, they frequently get it by selling stock to the public. The company gets money from the people who buy their stock. The stockholder gets... well, the stockholder gets a piece of paper saying that he owns a piece of stock in the company in question. Unless the company pays a dividend, and few of them do anymore, the stockholder is really entitled to nothing. He or she is not even entitled to get their money, the principal amount, back. Of course, people buy stocks in the hope that the price will go up and they can turn around and sell the stock to someone else for a profit. But they're not guaranteed to get their money. Essentially they're not guaranteed of getting anything for their money. The company gets your money. You get a worthless piece of paper.

So why do banks get a guarantee when they loan money, but the average person who loans out their money to corporations in the form of a stock purchase doesn't? It seems that a reform to this system is long overdue. I propose a federal law that requires all sales of stock in publicly held corporations be accompanied by a contract obligating the corporation selling the stock to buy back the stock at its initial purchase price (the principal amount) within 12 months of notice by the stockholder that they wish to redeem the stock for its initial value. In this way, corporations would be forced to be responsible with their stockholders' money and wouldn't be allowed to get rich using "other people's money".

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Aaron Sun is a mathematician and programmer from the Philadelphia area. He is very passionate about applying the clarity of thought taught by Zen philosophy and the rigorous, precise logic of mathematics to the solution of the world's problems.

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Buying Stock Makes You A Lender, So Isn't It Time To Start Acting Like A Bank?