Here are a few things which I've scribbled down on bits of paper over the past few days which I vaguely intended to 'blog about at the time but never really got round to it. So as an aide memoire for the future:
1. The normally prudish Sun newspaper showed a Page Three girl who was wearing invisible underwear as advertised by Bar Refaeli.
2. Porn shops in Westminster won a refund/reduction of hefty licensing fees from the council, because they contravened EU Directive 2006/123/EC, which seems like quite a sensible directive on the face of it. All of this raises a lot of interesting questions (economic, legal, sovereignty etc). How do we square Article 12 with licensing of taxi drivers, for example?
3. Supposed right-wing Tory John Redwood musing about how nice it would be if we could go back to the lower tax rates we had when the Chancellor was... Gordon Brown (top rate income tax 10% lower, National Insurance 2% lower, VAT was 2.5% lower etc).
4. The UK is not absolutely useless at everything: shock Britain exports more vehicles than it imports for first time since 1976
5. It appears that they are going to make people criminally liable for death and injuries caused by their dogs, something which I have long advocated.
6. Tory government is close to achieving its pre-election pledge of getting construction of new housing in England down to less than 100,000 a year for the second year running. With the rain stopping play during April and all the Olympic and Jubilee ructions, I'm sure they'll get it down to five figures for the next year. Hoorah! The Hallowed Green Belt is Preserved For Future Generations! But not to build homes on, obviously - just think, instead of having a house with a rental value of £10,000 a year, we could be growing £100's worth of potatoes or something.
7. Queues at Heathrow. FFS. When you think how much human effort and ingenuity it takes to run global air travel: the aeroplanes, the technology, the staffing rotas, coping with the weather, air traffic control, difficult passengers, getting people's luggage on the right aeroplane, killing as few passengers as possible, guarding against terrorist attacks etc, it is amazing how well it works, really. And the UK government can't even organise a few dozen people to sit in booths, open passports, check the face, hold it face down on a scanner and mutter "Enjoy your stay" while chewing gum.
8. I explained recently why the building society funding model, where a company's assets are matched £ for £ with customer/owner deposits instead of shares is a vastly superior way of running a business than having share capital. So instead of a shareholder being paid dividends at the whim of directors; investing in a company by buying shares from an existing shareholder and realising his investment by selling his shares to a third party; a depositor invests directly in the business and withdraws money from the business.
It occurred to me today that this model is also used by Unit Trusts: a UT's net assets are always funded £ for £ by unit holders' funds: you invest in a UT by paying in money, which is invested on your behalf (in shares in other companies, but that is not important), all the income and gains of the UT are credited pro rata to unit holders as they go along, and if you want your money back, you withdraw it from the UT itself, and to the extent that withdrawals are not matched with new subscriptions, the UT just sells some of the underlying assets. So the model does work in real life, it's nothing new or unusual.
9. While looking for something else, I stumbled across a couple of instances of Austin Mitchell MP saying sensible things about Council Tax, e.g. here and here. And about London.
10. UK banks not completely dishonourable: shock RBS repays £163bn emergency loans
11. BobE emailed me this fine piece of Home-Owner-Ist drivel from guess which paper:
Regardless of where you are on the income scale, nobody could ever call your decision to buy a house irresponsible – whatever happens, you need somewhere to live, and swingeing rents usually represent far worse value. For low-earning households to have avoided mortgage debts, they would have had to actively decide to stick with renting; that is, to pay the same, for a worse property that they'd never have any equity in, just on the off-chance that, as a result of a possible downturn, they might be dragged down by the debt. What a bizarre thing to expect of people, when you're preaching a can-do, pull-yourself-up-by-your-bootstraps, aspirational Tory attitude.
12. Jorge emailed to ask whether I thought Iceland should adopt the Candian dollar, I can't say I have a view on that one way or another.
13. Finally, is it just me or do Natalia Vodianova's legs look completely out of scale (in a bad way) in this photo from today's Evening Standard?
39 comments:
7: the trouble is, to appease ignorant bigots, we've gone from the system you suggest to one where foreigners are fingerprinted, electronically matched, interrogated, etc. And because governments are stupid, the amount of funding allocated hasn't risen to match the increased workload.
The sane solution would be to say "fuck it, if you've got here on a plane you've managed to persuade the airline that you're legal and not a terrorist, that's good enough for us", end the queues and save vast amounts of money. Sadly, that won't do for the ignorant bigots, so doubling staff numbers is the least-worst option available.
9. Austin Mitchell MP would do well to say, 'Fine, feel no pressure to move out of your 5 bed home, but please do not raise any objections to the block of flats we're building next to you.'
JB, I don't think airlines are too fussed what people get up once they've landed.
M, at least he is consistent between the two comments on Council Tax, and he is AFAIAA a big supporter of council housing.
8. Although for various tedious technical reasons (some of which boil down to costs), unit trust investment performance tends to lag that of their closed-end cousins, investment trusts, which require investors to realise their gains by selling their shares to other investors rather than withdrawing them from the trust assets.
H, opinions are divided on that, but shares in ITs can trade at above or below net asset value.
What you get for a unit in a UT is pretty much always your share of net asset value - if the extra return on shares in ITs is because they trade slightly above net asset value, then that is not real wealth is it? One man's gain is another man's loss.
Plus I merely wanted to illustrate that the (vastly superior) LLP-building society-unit trust funding-ownership model is nothing far fetched.
The building society funding model for companies is silly because it attempts to transform maturities. All business ventures take time. The company will not be able to hand all investors their cash back whenever they want. Imagine a company has just been established, machinery & stock bought, and then all the investors withdraw. The machinery and stock will be sold off for less than was paid for them. Some types of assets aren't even be able to be sold off immediately.
No sane entrepreneur would take on a liability to pay his investors back at a moment's notice. Once a business venture is started, it takes time to come to fruition.
You appreciate that this is a problem when you say "ok, there could be withdrawal controls if everyone tried to withdraw their money at once". But you don't seem to appreciate that this shows your proposal to be irredeemably flawed: if there are withdrawal controls, then why bother with your system in the first place?
The alternative counter-argument is that it is very unlikely that everyone will want to withdraw at once, so don't worry about this. This counter-argument fails because you have enabled the possibility of a bank run. If one person wants to withdraw their cash, the company will probably be able to flog off something and give them the cash. But if everyone tries to withdraw their cash, the company has a fire-sale of assets and won't generate enough cash. So everyone goes short. So there is an incentive to withdraw your cash before everyone else. So everyone will rush to withdraw their cash regardless of the profitability of the company.
The problem you are trying to address is that the managers will be less willing to shut a company down than the owners. The principal agent problem is still a problem but you haven't solved it. The correct solution is impeachment: the shareholders should be able to throw out the CEO or shut the company down whenever they want, but only by majority vote.
Unit Trusts do not prove that your model is viable, because Unit Trusts invest your money in joint-stock companies, and can only realise their money by selling the shares to a third party.
Fundamentally you are motivated by a dislike of people capitalising on their shares. I find this very bizarre. The whole point of a company is that it is worth more than the sum of its parts. Why should someone sell their share for less than they can get for it? If they did that, why would they set the company up in the first place?
That said it's a fascinating and thought-provoking idea, and I look forward to you trying it out.
James: "Imagine a company has just been established, machinery & stock bought, and then all the investors withdraw."
??? That's like saying "Imagine a group of people who pay for a house to be built who then knock it down again and try to sell of the bricks". It's a totally unrealistic example.
You fail to distinguish between:
1. A new start up, where it is always clear that people are tying up their money for a few years until the thing is up and running. Lots of new ventures are sole traders, partnerships etc. These are not the sort of people who build up a business and then promptly bankrupt it.
2. Large, mature businesses, where the amount of churn is quite predictable and returns are quite stable. Most investors invest for the long-ish term (as retirement savings etc). And it works perfectly well for building societies.
"The whole point of a company is that it is worth more than the sum of its parts."
Nope. It is the actual underlying BUSINESS which is worth more than the sum of its parts. If a depositor feels that the returns he gets from his deposit with a particular company are higher than elsewhere, he can just leave his money in, and collect those higher future returns as his profit share.
The overall return - from the investor's point of view is exactly the same (and there are behavioural reasons why the deposit model is better). What would not happen any more is that investors make windfall profits from other investors - one man's gain is another man's loss, having shares does not increase overall investor returns by one penny (how can it?) and all in all, probably reduces them.
2. Did you know that UK porn sellers are at a disadvantage compared to sellers in the EU? If you want to sell R18 films in the UK, not only do they have to be certified by the BBFC (at a cost), you also aren't allowed to sell them mail order. On top of that, you have to have a license to sell them that costs thousands of pounds.
However, if you buy a film of similar content from the EU, you can get it sent mail order and it doesn't have to pass the BBFC certification. The only thing it has to pass is the C&E test for obscenity (which is basically anything that the BBFC wouldn't pass).
As a result, a whole load of companies that sell porn via the internet are based in other, non-EU countries.
"???? That's like saying 'Imagine a group of people who pay for a house to be built who then knock it down again and try to sell of the bricks'. It's a totally unrealistic example."
Startups: Imagine a group of people who set up a business with only just enough funding, and then one of them immediately wants to withdraw. The business fails.
Established businesses: without withdrawal controls, you will have bank runs -- you haven't addressed this point. Indeed, I am opposed to banks running on the demand-deposit model; they also have bank runs. Investments have non-zero maturities: they should not be funded by zero-maturity deposits.
The point is that there are perfectly sensible reasons for selling equity instead of bonds (or taking deposits).
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Why should investors have to take their profit share every year? Why shouldn't they capitalise it and get out? Surely we want entrepreneurs to be able to sell their shares to people who want long-term lower risk investments in established companies, so the entrepreneur can fund their next risky venture.
TS, exactly. The whole thing is stupidity piled on stupidity, and the EU appears to have got it right on this one.
James: "you will have bank runs -- you haven't addressed this point."
Think about real life. How often do bank runs happen? And why do they mainly happen to banks? Yes, there might be a "company run" once a century, so what? The assets get sold and somebody else takes over.
Think about real life - half the depositors panic and want out, and half are quite happy to stay in. To whom would the assets be sold - possibly at a knock down price? To the depositors who want to stay in, so those who want to stay in end up better off (or with a larger share of the same business for the same original investment)! Or maybe the business is no longer viable - then why shouldn't it be shut down? To prolong the agony is wealth destruction on a grand scale.
"Why should investors have to take their profit share every year? Why shouldn't they capitalise it and get out?"
Again, think about real life: Each quarter's profit share is credited to deposit accounts, that is far from saying people "have to" withdraw it, why would they? If you're saving up for retirement, you are quite happy to let the profits roll up every time and stay in the business.
"Surely we want entrepreneurs to be able to sell their shares to people who want long-term lower risk investments in established companies"
Think about real life. I couldn't care less what "we want", it's what the entrepreneur wants that matters. If he (or a small group) build up a splendid new business from scratch, they are perfectly entitled to sell the whole thing lock stock and barrel for cash to a larger company and start a new venture (or retire). Where on earth did I ever say that they couldn't?
To whom will they be selling? You said it yourself - they will be selling to "people who want long-term lower risk investments in established companies" so by definition, this group are happy to stick their money in for the longer term, roll up profits etc. So don't tell me that they'll sell out to people who put all the money in and then try and withdraw it the next day.
I do this for a living, I know about real life, new businesses, trade sales, flotations, insolvencies and stuff, or what the difference is between UT, IT, partnership, LLP, Ltd or PLC and so on, take it from me, what I am suggesting works perfectly well in real life.
"Fundamentally you are motivated by a dislike of people capitalising on their shares"
Well I am certainly motivated by a fundamental dislike of people using company shares as gambling chips, and I think that is what motivates Mark too, not a dislike of people capitalising on their shares.
"The whole point of a company is that it is worth more than the sum of its parts."
Yes, but under the present system, it can also be worth less than the sum of its parts, hence asset-stripping.
I have no problem with people doing what you are proposing, Mark. I'm just pointing out that no one sensible would choose to withdraw instead of capitalising their share. E.g. building society depositors voting to demutualise. "Where on earth did I ever say that they couldn't?" If the market value of the company as a whole is more than the value of the deposits (which it will be for any profitable company), but investors can only withdraw their deposits, then there is value unaccounted for. The point is that investors can only "sell" their "share" (be replaced by a new depositor) for a predetermined amount, rather than its market value.
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I also have no problem with people choosing to invest in maturity-transforming companies, I just note that in real life no one does so because they are deathtraps. People will only invest in them if their deposits are guaranteed by the government (e.g. banks).
Odd that you play down how damaging bank runs are. And bank runs would happen all the time unless the banks are guaranteed by the government. The only reason Northern Rock had a bank run was because it looked as if the govt weren't going to bail them out. The moment the govt guaranteed everyone's deposits, the bank run stopped.
So maturity-transforming banks have to be guaranteed by the govt. This is awful and shouldn't be the case; companies guaranteed by the govt aren't going to create wealth.
But your proposal would require all companies to be guaranteed by the govt: the Sovietisation of the entire economy. I imagine that if the government declared that all companies would be guaranteed, the sort of arrangement you describe would start to be implemented. But as we can see, all companies are not guaranteed, and the arrangement you describe hasn't happened. I wonder why?
"what I am suggesting works perfectly well in real life"
No it doesn't, that's why there aren't any examples of it. Unit Trusts are not an example, because they buy *shares*.
"???? That's like saying 'Imagine a group of people who pay for a house to be built who then knock it down again and try to sell of the bricks'. It's a totally unrealistic example."
What would actually happen?
Scenario 1. Ten people form a unit trust to build a house. Depositors can withdraw at any time. They each put £10,000 in: total £100k. The unit trust spends £100k on land, materials and labour up-front, builds the house, and sells it six months later for £150k. £5k is credited to each account, all the depositors withdraw their £15k and everyone is happy.
Scenario 2. Ten people form a unit trust to build a house. Depositors can withdraw at any time. They each put £10,000 in: total £100k. The unit trust spends £100k on land, materials and labour up-front. One depositor decides to withdraw before the house is complete. How can they? The money just isn't there! It's been spent. Your proposal requires companies to hold a "float" of cash to deal with occasional withdrawals (like a bank). This isn't always going to be possible: we all know how much of a problem cashflow is when you're trying to run a business. And even where it is possible, it would be a waste.
Scenario 3. Ten people form a unit trust to build a house. Depositors can withdraw at any time. They each put £10,000 in: total £100k. The unit trust spends £50k on land, but pays for materials and labour as they go. One depositor wants out, and the unit trust has enough cash sitting around to pay. But now they don't have enough money to finish the job. They have to find another depositor. But what if they can't find one? Either the whole venture fails and everyone else loses money, and the enterprise is sold off to someone for less than £100k. Or the remaining depositors agree to let someone invest £10k for a greater than 10% share. Either way the effect is the same. The problem comes from trying to denominate shares in a company in £ instead of %. Price fixing never turns out well. You get the same problem with defined-benefit pensions. You are right that it would be good if it were easier for shareholders to shut companies down and flog off the assets. The solution to this is to make it easier for shareholders to shut companies down and flog off the assets, not to replace shares with deposits.
Scenario 4 (the correct answer). Ten people form a unit trust to build a house. They each put £10,000 in: total £100k. They have £10k in their account. Their accounts are debited by £10k. No one can withdraw, because they each now have £0 in their accounts. The unit trust spends £100k on land, materials and labour up-front, builds the house, and sells it six months later for £150k. £15k is credited to each account, all the depositors withdraw their £15k and everyone is happy.
James, you're very good at grand rhetoric but not so good at logic and real life:
"If the market value of the company as a whole is more than the value of the deposits (which it will be for any profitable company), but investors can only withdraw their deposits, then there is value unaccounted for."
Nope.
A business has whatever assets it has and generates whatever profits it does. The NPV of future profits accruing to owners is whatever it is, it makes no difference what the legal form.
If a depositor decides to leave his deposit + profit share untouched to [a long way into the future] the value to him is exactly the same as if he owns shares and takes scrip dividends.
Now, you like this "get rich quick" culture where the current owner can get his future profits in advance by selling for above net asset value to the next guy. By definition, the next guy has to pay for the first few year's profits in advance. The first man's gain is the next man's loss. The total returns to investors (taking all investors collectively) over the longer term are exactly the same.
"But your proposal would require all companies to be guaranteed by the govt"
Complete nonsense. Are all LLPs guaranteed by the government? Are they heck.
Please think about real life, yes, once a century there will be a company run. So what? As a short term measure, the company can place a block on withdrawals, and a while later, either it gets going again, or the company is shut down and you get less than your deposit back.
Can you please explain to me how this is in any way worse or different to shares being suspended and/or buying shares for £10 and then selling them for £1 when the company does badly?
And by and large, the amount people invest is no more than asset value, so the most they can lose is 100% of asset value. If you buy shares for more than asset value and the company goes bust, you can lose more than asset value, so deposit-funded companies are inherently safer and hence better investments.
That's real life, not rhetoric about "maturity transformation". Most small shareholders are happy to own their shares for years and years, why do you think that small depositors would all promptly withdraw their cash?
B, ta for back up.
James, your scenario 3 shows a startling lack of understanding of the real world. Say one investor gets cold feet and wants his money back, the company clearly can't repay. So...
- the company just puts a freeze on withdrawals
- or the company would be formed as an LLP with an agreement that no funds to be withdrawn until x project is completed.
- the company/other investors (who are keen to finish) say OK then, we'll sell the half-finished house for what we can get for it, and sell it to themselves for £60, the £60 goes into the pot and each of them gets £6 back, the unwiilling investor is told to fuck off. So getting rid of him has cost the other nine investors £0.67 each, in exchange for which they end up with another £1.50's worth of finished building.
Simples!
I spend my time sorting out such shareholder disputes, take it from me, there is always an answer, i.e. a price at which some people are happy to stay in and others are happy to get out, and if the project is worth completing, it will be completed.
Stop inventing artificial scenarios and non-existent problems, it's boring.
Correction: " in exchange for which they end up with another £1.50's worth of finished building"
Should read, each investor gets £1.67's worth of finished building (the leaver's share of £15 divided by 9). So they end up better off and the panicker loses out.
"The first man's gain is the next man's loss. The total returns to investors (taking all investors collectively) over the longer term are exactly the same."
I understand that, but so what? Why shouldn't the first man be allowed to get his future profits in advance by selling for above net asset value to the next guy? The next guy is willing to pay for it, so what's the problem? What's wrong with this "get rich quick" culture?
You're saying that an entrepreneur can keep his investment in the company at NPV, but if he wants to withdraw to start a new company he can only get less than NPV. That would reduce wealth creation.
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"That's real life, not rhetoric about 'maturity transformation'. Most small shareholders are happy to own their shares for years and years, why do you think that small depositors would all promptly withdraw their cash?"
Small shareholders are willing to own share for years and years because they know that other shareholders cannot withdraw money from the company, only sell their share to someone else. If everyone can withdraw, you get positive feedback: bank runs. The fact that bank runs only happen rarely is not a convincing argument. They only happen rarely because banks are guaranteed by the govt. If they weren't guaranteed, bank runs would be much more frequent. Similarly, either your proposed companies would have to be guaranteed by the govt, or they would go bust frequently.
"Are all LLPs guaranteed by the government?" Irrelevant: you cannot withdraw money from LLPs with zero notice.
J: "You're saying that an entrepreneur can keep his investment in the company at NPV, but if he wants to withdraw to start a new company he can only get less than NPV. That would reduce wealth creation."
OK, you have resorted to the time-honoured internet tradition of outright lying.
Fact: the owner of a business is perfectly free at all times to sell the entire business to anybody else for as much cash as he wants. I've explained that above.
"If everyone can withdraw, you get positive feedback: bank runs"
Nope.
I might as well say, owning shares is risky because "If everyone can sell his shares, you get positive feedback: share price collapse."
I don't want to sound bolshie, I'm genuinely curious to find out more by prodding your argument to see what your answers are.
J, I have thought it through and applied it to real life situations, it works. If I hadn't thought it through, and if I didn't have answers to everything I wouldn't have suggested it. Futher, in your earlier comment, you contradicted your own hypothetical:
Scenario 3: One depositor wants out, and the unit trust has enough cash sitting around to pay.
Sccenario 4: No one can withdraw...[the project is completed and ] £15k is credited to each account, all the depositors withdraw their £15k and everyone is happy.
Well, the chap who wanted out at the earlier stage is clearly not happy, because he wanted his money earlier. Is he happier with £6 break up value at earlier date or £15 at later date? Make up your own mind and then rework your examples.
It's a different chap. The chap in scenario 3 wouldn't have invested in scenario 4.
J, as a matter of fact, a lot of my clients are property developers, they use a weird old mix of loans, companies, partnerships, joint ventures, cross charges, whatever.
They couldn't care less about the legal form, they care about who funds it and how the profits are shared, and 9 times out of 10, projects are completed amicably without any particular legal agreement, it's done on trust. If there's a punch up, then some people buy other people out, after adjusting up or down for potential profits/losses.
Interestingly, this culture is exactly the same in Germany as in the UK. If your man from 3 pulled out early, nobody would ever work with him again, problem solved.
In any of these schemes, are any of the investors allowed to get their money back in full with zero notice? Thought not.
To be clear, it's the zero-notice aspect that's at the root of my criticism. Yes, I am one of these anti-fractional-reserve-banking/anti-maturity-transformation loons. I don't think zero-notice deposits of banks should be invested either.
J, hullo! Real life calling!
With smaller businesses, where there is a specific project which will last a specified minimum duration, or which is a partership in the traditional sense (professionals), the LLP is the most appropriate structure, where of course there would be an agreement as to how long funds are tied up for etc.
The "deposit funded company" I envisage is appropriate for larger businesses with lots of projects of indefinite duration and a fiarly stable asset/income base, with lots of investors who may have different time preferences (i.e. just about any quoted plc).
It is entirely up to the owners/partners in an LLP if and when they want to sell the entire business as a going concern for cash; to wind it up on completion of a project, or indeed to re-register as a DFC (tantamount to a flotation).
The fact that you don't understand this or know which choice the owners make at what point in time is irrelevant, because they will know it for themselves.
You, as a humble small investor can then choose whether to invest £1 for 1% of a DFC with a ten per cent return on investment, or to buy a 1% share in a plc for £2.50, carrying on a similar business to the DFC with a dividend yield of 2%. I know which I'd choose.
J, the zero-notice is one of the big advantages, as it encourages managers to run the business sensibly, so investors are happy to stay in because they are getting a good return.
It keeps them on their toes. We now have plenty of evidence to show that e.g. banks who were mainly funded by deposits fared much, much better than those who were mainly funded by money market funds. And we have plenty of evidence to say that building societies which demutualised (N Rock, B&B) did far worse than buildings societies which stayed mutual. There was no run on Nationwide.
"What's wrong with this "get rich quick" culture?"
One man's gain has to be another man's loss. The money has to come from somewhere. In the Great Casino that is the stock market, the money mostly comes from people's pension funds and mostly ends up in the pockets of the successful gamblers in the Casino and the multi-million pound industry that has grown up around them.
"One man's gain has to be another man's loss. The money has to come from somewhere. In the Great Casino that is the stock market, the money mostly comes from people's pension funds and mostly ends up in the pockets of the successful gamblers in the Casino and the multi-million pound industry that has grown up around them."
Yes, all equities go to zero eventually. But people are capable of taking this into account when they value the company. The thing that bothers me about your complaint is the unlibertarianness of it. What is wrong with consensual transactions? If someone wants to sell off their share of a company, they will obviously sell it to the highest bidder. If that highest bidder willingly takes the possibility of future profits into account, what is the problem?
Obviously anyone who buys the share expects the profit of the company to go up, and anyone who sells the share expects the profit to go down. There will be winners and losers, but it is all consensual. And it frees up entrepreneurs to go off and make more wealth.
(The stuff about people creaming off other people's pensions is a fundamentally separate issue, so I have ignored it.)
B, ta for backup.
J: "And it frees up entrepreneurs to go off and make more wealth."
More empty rhetoric. Proper entrepreneurs would far spend more time building up and running successful businesses, and their investors would keep a close eye on the actual real profits etc generated.
This would save all the energy wasted by half a million people involved with analysing and tracking share prices, speculating and winning and losing money accordingly. Maybe some of these geniuses could actually set up proper businesses which make real goods or provide real services?
You deliberately miss the point that a person or small group of people are entirely unaffected by any of this, they start a business, build it up and then once it gets established and boring, they can sell it for £ oodles to whomever they choose, i.e. a larger business.
And because that larger business is paying proper cash rather than fantasy money (shares) it is far more likely that a better bargain is struck between the two.
And so on. I've thought this through; you're peddling half-understood sub-Thatcherite propaganda. Come up with a proper, practical objection by all means, but not just trolling.
"More empty rhetoric. Proper entrepreneurs would far spend more time building up and running successful businesses, and their investors would keep a close eye on the actual real profits etc generated."
No, that's empty rhetoric. One way to create wealth is entrepreneurship: moving resources from less productive uses to more productive uses. The point is that a company is worth more than its asset values. The entrepreneur buys assets for their market price, puts them to a more productive use and thus creates wealth. He's not scamming the people he sells it to: they don't want capital gains: they want a savings vehicle.
J: "One way to create wealth is entrepreneurship: moving resources from less productive uses to more productive uses."
Exactly. And if deposits in company A are returning 15% profit share a year and deposits in Company B doing a similar business are paying 20%, people will withdraw money from A and place it with B. So my model is better than yours.
" a company is worth more than its asset values."
No, it's "the business" which is worth more, the legal form does not affect this, I've pointed that out already.
"The entrepreneur buys assets for their market price, puts them to a more productive use and thus creates wealth."
Repetition and irrelevant, see above.
"He's not scamming the people he sells it to"
I never said that a business is scamming its customers. I said that people making and losing money by speculating in shares destroys value as it is an irrelevance and does not create value in the same way as the underlying business does.
"they don't want capital gains: they want a savings vehicle."
Correct. Which is why it is better to pay net asset value and get a 15% annual return that pay three times asset value in the hope of finding a bigger fool later on for a 3% dividend yield. I have dealt with this point, and yet again, the "deposit funded company" wins out.
It's you who says that shareholders making capital gains is the be all and end all of investing. And it's me who says that yield on money invested is far more important.
So make up your mind first, and then enter the debate.
"What is wrong with consensual transactions?"
Well, that rather depends on the transaction, doesn't it? If I score an eighth of heroin of a dealer, that is a consensual transaction between me and the dealer, but it is still wrong in the eyes of the law.
However, if there is a better and a worse way of doing anything, then doing it the worse way is usually referred to as doing it the wrong way. Just because something has always been done in a particular way doesn't mean it's the best way to do it - just look at the keyboard you are typing on as an example.
Mark: airlines actually care quite a lot about what the people they transport get up to when they land, because they get fined vast amounts of money if they bring in people who aren't allowed to stay.
JB, aha, I didn't know that.
But how do they match up people with the aircraft they landed on? As far as I can tell, they can't. In other words, they can be fined in principle but seldom in practice.
"because they get fined vast amounts of money if they bring in people who aren't allowed to stay."
Then they must do all the sorting out at the other end and there is even less point having the Border Agency do it at this end.
But how do they match up people with the aircraft they landed on?
They ask the people concerned? I can't see why the soon-to-be-deported would-be illegal immigrant would give a f*ck about landing the airline that brought him here into hot water.
Mark, have you never flown into the UK in the past 10 years? When you check in, the airline transmits your name, DOB, passport number etc to the UK all within the 20 seconds your passport is with the agent. If you check in online, you need to fill this stuff out yourself. Look up Advance Passenger Information.
Do you think airlines would care about your passport if the governments didn't? If it was up to them, once you've paid you can get on, and they would conduct security checks merely to fulfil the requirements of their insurers. This is why when person A buys a ticket for person B using a credit card in person A's name, someone (A, B or C) needs to present the card in person at check-in or at an airline ticket office.
Also look up Timatic. If airlines don't apply Timatic rules properly, then they get fined. However, people can still get turned away in situations such as when an American is coming to visit her British boyfriend. As far as the airline is concerned, she doesn't need a visa because she is American, but the immigration officer thinks she is coming to the UK to get married, which does require a visa. Unless she can convince the officer otherwise, she will need to go back to the US at her own expense.
The US actually takes it one step further, since 2009 you need to apply (and pay) for approval directly with the DHS and then inform the airline of your approval. That is a general 2 year approval to enter the US. The airline then informs the US when you are actually about to fly but is off the hook if you are then refused entry.
Australia takes it even further than that (and has done so since 1994-ish). The airline actually needs to check your visa - everyone needs a visa to enter Australia, but for EEA citizens, Swiss, and the 5 tiny countries it is an electronic visa that is free. They send a telegraph (some sort of minicom text-based system) from the check-in desk to the Australian government, which replies with a YES or NO within 10 seconds to 20 minutes (my dad fell victim to this once, as he has four passports spanning the 1970s to today stapled together).
J, thanks for back up info.
Yes, I know that airlines check who is getting ONTO their planes, but once the plane has landed and the person has GOT OFF THE PLANE and thrown away his passport etc that is of little assistance. I've seen TV programmes about this, there are people wandering around arrivals who refuse to say where they are from and then apply for e.g. asylum.
And clearly there are plenty of people who overstay visas, and apparently we don't check who is leaving the country (so we don't know who is still here). There is nothing airlines can do to stop this.
So these things CAN be run properly (see Australia) but that just goes to show there is nothing the UK government can't f- up.
1. Fair enough. This happens less often nowadays - because the people in question need to qualify for a tourist visa before they can get on the plane. (Incidentally, Canada pissed off the EU by forcing Czechs to get tourist visas because they kept applying for asylum. The EU wants to impose tourist visas on Canada but after 3 years is still at the stage of sending angry letters and politicians to Ottawa because they are following the money.)
If you have a plausible case (Somali, Afghan, Iraqi etc) whether fake or not, then throwing away your passport just makes things take longer. The people wandering around probably had fake passports, travelled via Schengen / Ireland and thus don't qualify for UK asylum, or have made up some bullshit and are trying to get their story straight before applying. Of course none of this applies to the loads of uncounted illegals who arrive by ship or Chunnel.
2. Yes, but there's nothing any government can do about that except assess risk, unless you only allow tourists to go on guided tours in handcuffs. Yeah, the govt fs-up everything, but the actual problem is the UK has an amnesty: everyone from anywhere qualifies for citizenship after 15 years as long as they have stayed hidden and can prove their initial entry.
It was easy to get a tourist visa at the border in John Major's time. If they since impregnated or were impregnated by a British citizen, this only strengthened their case: they could reveal themselves and the British passport would arrive in 7 years. So people who arrived in the early years of Blair are still revealing themselves now, and these are the "unknown unknowns".
For anyone who has a legal visa from around 2007/08-ish, theoretically the govt knows if you are in the country or not. You are meant to tell them whenever you move house, and airlines are meant to report API for entries and exits. Ideally, the immigration officer would scan your passport and all your movements would show up on his screen. Large scale IT projects never work properly, but if they drag you to an interview room, they can call up this information eventually.
Whichever hare-brained civil servant in 2007 thought an e-airport exit check would work obviously did not think that people can fly in and leave by Eurostar or car. People with dual citizenship might use a different passport in and out. Also, valid visa for Ireland? Welcome to the UK! Valid ticket from Brussels to Lille? Welcome to the UK! (the latter has apparently been stopped, but once DB starts sending trains here, it's going to start all over again).
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