Thursday, June 25, 2009

Louis Gerstner: Kill The Casino Wall Street Has Become

In an interesting overture to killing the current casino culture that is enveloping capital markets, none other than IBM former CEO Louis Gerstner is recommending taxing short-term (less than 1 year) capital gains at 80%. While such a proposal is sure to kill 90% of participants in the capital markets casino which lately trade only on an intraday basis and nobody cares about fundamentals that may justify a long-term buy or hold (simply because anything long-term in this economy will ultimately result in a 0 valuation). From Bloomberg:
“If you buy something -- a stock or a bond -- in the morning, and you sell in the afternoon, the tax probably ought to be 80 percent,” said Gerstner, also a former chairman of Carlyle Group, the world’s second-largest private equity firm.

“If you hold it for six months, maybe it ought to be 60 percent,” Gerstner told Bloomberg Television.

“We do have a greed or an inefficiency that comes out of excessive focus on the short term,” said Gerstner, who bemoaned an investment climate driven by quarterly earnings and a 24-hour news cycle. He was an executive at American Express Co. and RJR Nabisco Inc. before joining IBM.
Some other revolutionary ideas by Gerstner:
Gerstner, who approves of generous compensation for executives who add shareholder value, called for an end to golden parachutes for failed managers. “We have to see an elimination of pay for people who get fired and then wind up with these huge payments,” he said.

Gerstner acknowledged that Wall Street executives he knows wouldn’t like his plan for higher taxes on investment gains.

“They wouldn’t like it at all,” Gerstner said. “Wall Street is driven by transactions. That’s what they live by. They don’t live by long-term investment decisions.”
A good example of the short-term trading culture is today's market action, where the S&P has gone from down 3 points to up 17 points (an intraday 20 point swing on nothing!) on a plethora of bad economic news, simply as a result of manipulated futures purchasing by visible and invisible hands, to preempt potential panic selling as a result of the impending termination of Ben Bernanke from his current post, compliments of several non-conformist Congressmen. Presumably Goldman is cheering Summers impending appointment to the former's post by buying every share it can find (as well as TSYs, Oil, Gold, and the dollar: we are back to global market beta = 1.000).

And while Gerstner's proposal is truly revolutionary, there is no way in hell that micro trade focused Goldman Sachs, which is back to its hedge funds swing and momentum trading days, would ever allow this to become actual policy. With Larry Summers happy to have Ben keep his chair warm for at most a few more months, one can be certain that Wall Street's power interests will soon be maintained in perpetuity or until the S&P hits 0, whichever comes first (in the next 2 years). Sphere: Related Content
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