The Wall Street Magic

Perhaps the other name I could think of for this blog was the "Evils of Joint Stock", but I knew in that way I could not attract attention of my readers so I used my naïve business knowledge to market my blog. Few hundred years ago, our poor (deprived) man was fighting with his destitute state and suffering. You may ask "Well he is still suffering today", what point you want to make? Actually few hundred years ago, he knew he was suffering but today, this poor man is intoxicated with hope of becoming a billionaire like Mr. Warren Buffet. Whatever Mr. Buffet (with all the respect) says become part of syllabus of Business Students and remembered and respected as something heavenly. His dictum may motivate any penniless or indigent to strive and succeed. I have nothing against him. I was talking about the destitutes who were undergoing lots of distress during the time when a capitalist had money and all the resources. Those who had no money were depending on the resources provided to finance their subsistence by this capitalist so that he and his family could survive. In return, the capitalist had designed an excellent "Financial Model". According to that model, he was not only able to get back his principal, but the return was more than the money he had "invested" in that family and they remained slave for their entire lives. This slavery could last for centuries, so if your great grand father had taken loan, it was likely that even your kids could not be able to pay it off. The markup for such an amount was obnoxious. Yet the long for wealth of this capitalist was a never ending thing. Who amongst you consider this guy to be smart? His offspring proved to be smarter than him. 

When it was smelled that this system is going to collapse and there is a better alternative to keep their rule on the wealth by depriving masses of whatever they have. The concept of "Joint Stock" was therefore created. This reversed the role of Financing and Financed Party. The poor man who had been victimized for centuries was given a very lucrative deal. "We have been financing you for a long time and in return you have been paying us the interest - Now you are going to finance us and we will pay you the return". This naive guy was astonished. Now I am going to be the owner of resources and now its my turn to take revenge, I will be rich, time is mine. He could not realize that this financier whose elders were so smart, how their offspring can design a system that goes against themselves. While the earlier Joint Stock could be traced back in 1250, this phenomenon strengthen its roots in nineteenth century and finally specific legislation was introduced in 1844- the so called "Joint Stock Companies Act 1844". 

Usually any business venture is financed by two sources; Capital (belonging to the owner) and Loan. Small lenders were asked to be owners of a big company by buying shares. In their very small chunks, these small capitalists developed the foundations of big sometimes multinational companies, they could never dream of owning. In other words, they were the financier of the companies ventured by the wealthy & smart. The Financial Model working behind was: the owner will have the last priority in case the business fails; Fair Enough! There were other so called Micro Economics phenomenon introduced addressing the Moral Hazard, Information Asymmetry, Principal Agent Problem, whatever that could satisfy those investors. But in reality, everything was standing on a bubble. The provider of the loan had the largest priority of payback when the business was diluted. So wealthy remained wealthy, because the model was designed by them. They had a perfectly designed - the most optimal financial model so that when the company remains in profit, they get the highest return and when it fails, they get (at least) their principal, to pack up and start another venture.  

The Occupy Wall Street is a cry from those victimized by this model. Do you think this model will survive as it is or another innovative model will be developed increasing NOT BRIDGING the gap between Rich & Poor. Do you think this Occupy Wall Street will help and some revolution will take place moving the resources towards the deprived people, or what else do you think will happen. I reserve my comments at this moment for another time. But my researcher husband must have found his hypotheses here. 

H1: The person who lends in a joint stock is richer than the provider of capital (Bond holders vs. Shareholders)

H2: The probability of failure of a company whose lenders are richer is higher than the probability of failure of companies where finance comes from poorer sources. 

H3: .................................................................... (I know he will add up something here).