January 23, 2008

Giving us the business

Sometimes I just don't understand business. Well actually lots of times. The stock market's ups and downs seem to be based on whims, panics, and puffery. To me the stock market is simply gambling with better tax treatment. I'm not sure why gains on stocks are taxed at a lower rate than the money you actually work for.

Much of the tax code is based on encouraging certain behavior. As an example, people who own homes have the ability to write off the interest on their home loans, making housing a bit more affordable. It is believed that owning a home makes for more responsible citizens, so the government encourages this by giving owners a break.

The tax break on stock profits is probably intended to encourage investment in businesses - keep the capitalist engine modern and running on all cylinders. Not a bad goal, except that of all the traffic on Wall Street, very little of this money ever goes to the company. You're just buying paper from some random person. If you're buying stock for a startup company, you're helping a new business get off the ground. Buying stock issued by an existing company can help them expand. That makes sense to encourage. The rest is just betting on a horse.

Apple shares fell 3.5% Tuesday, then an additional 11% overnight. This is after reporting the highest ever quarterly revenue and profits in their history, beating expectations. The reason for the drop - Apple's forecast for the next quarter didn't meet Wall Streets expectations. Thanks for beating our expectations Apple, but your expecations don't meet our expectations.

Washington Mutual's stock has dropped 70% in the past year. However the executives who ran the company are set to earn six figure bonuses. The size of CEO bonuses are ridiculous in general, as are their "golden parachutes". When they do a terrible job, bonuses aren't earned and shouldn't be awarded at all. Again, if the CEO has been there from the beginning and has created and guided the business to success, a nice bonus is in order. But CEOs seem to get out of proportion bonuses even if they have been there for a short period, and results don't seem to matter.

On the other side of the coin, the CEO of Tesla Motors has been dumped after founding the company, and for the last five years bringing a 100%, 125mph electric car to within 3 months of market. At least he is still second on the waiting list to get one of the cars he helped create.

1 comment:

SeanH said...

Hilarious. I don't get it either. You forgot to add that Apple's Steve Jobs' actual recorded annual take-home salary is $1.00 -but, of course, that doesn't count the millions in stock options!