COMMENTARY | The U.S. stock market is at record highs, but our national economy has yet to shake itself loose from the mire of the Great Recession. Unemployment and underemployment are high, many Baby Boomers have saved far too little for retirement, and real wages continue to erode. Despite the billions reaped by the upper echelons of the one percenters in the stock market, stock ownership by U.S. citizens is at a record low, reports CBS. Adding insult to the Great Recession injury, which scared many middle-class investors out of the market, are recent allegations that the U.S. stock market is rigged.
That’s right: Rigged. Authorities are investigating high-frequency computerized trading, which controls the bulk of the stock market, after allegations of illegalities emerged. It turns out that some investors who traded via computer may have rigged the game through electronic “front running,” which involves a high-speed form of the old “pump-and-dump” stock scam. Basically, guys with really fast computers can buy up your desired stock ahead of you, raising the price of that stock, and then selling it to you to collect the profit. ABC News explains that the FBI has been investigating these allegations for about a year, indicating that they carry considerable weight.
You thought you bought direct, at a lower price, and instead you bought retail and got charged a higher price. You got swindled at the speed of light, which translates into milliseconds when routing through miles-long fiber optic cables heading into the markets. Critics claim that something like this was bound to happen: Long ago computers turned the stock market into a system far too complex for humans to manage on their own.
Michael Lewis, author of the upcoming book Flash Boys, which unveils this scam, asserts that everyone invested in the stock market has been cheated.
We should take this news that the stock market is rigged as an opportunity to seek a major shift in our investment strategies. As individuals, we are encouraged to pour our money into stocks and mutual funds, investing our 401(k)s and IRAs with major brokerages. Unfortunately, by doing so we are not improving our national economy.
The rich, who own far more shares of stock than we middle class folk, get continually richer, buoyed by our obedient investments. The poor, meanwhile, get continually poorer, reaping little from our 401(k)s and IRAs. Now that the inequality-entrenching system of investing in corporate stock has been shown to be faulty, we should consider the new possibilities on the horizon in investing in human capital. We should consider creating new markets that allow investors to make a profit while simultaneously helping improve the economy.
We should allow individuals to sell shares of stock in their earnings, which would mean that their IPOs would give them enough financial capital to repay or avoid debt, pursue more education and job training, and make economy-boosting purchases. Investing in the success of individuals is a boon for productivity and capitalism, which I explain in my video. In the end, investors profit due to the increase in real wages for investees and society profits due to the collapse of the stranglehold our nation’s debt industry has on young people.