Message: 5
Date: Mon, 27 Apr 2009 09:08:56 -0500
From: Bill Lear <[email protected]>
Subject: [Pen-l] Purpose of stock market
To: [email protected]
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I should know the answer to this, but the general purpose of the
stock market is clearly not to raise new capital for businesses.
What broader economic purpose does it serve?
I've heard that stock price can be used to leverage loans for a
company, and therefore it is an indirect means of raising finance, but
this seems exceptionally dubious, as I would assume stock price is the
last thing a lender would look at and would instead look at standard
"balance-sheet" things (EBIDTA, existing debt, etc.). I this roughly
correct?
Bill
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Message: 6
Date: Mon, 27 Apr 2009 09:11:56 -0500
From: Bill Lear <[email protected]>
Subject: [Pen-l] Questions on graduate school
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I've been toying with the idea of going back to school to get a
graduate degree (PhD) in either economics or finance. I'd like to
study (among other things) the efficiency of public institutions
versus private ones, and I'd like to build a general model and
computer-based simulations of public and private sector
macro-financial interactions.
Does anyone know whether the University of Texas at Austin is a
reasonable place to study something like this? If not, any other
ideas or advice?
Bill
People have answered these two questions, and I have few suggestions.
First, on the stock market. David Harvey's /The Limits to Capital/ has
several excellent chapters on money, finance, etc. While the stock
market is only part of the tale, he usefully distinguishes between the
functions that the stock market (and financial capital) fulfill versus
the way any fully developed financial system or stock market must work
in a capitalist society. It terms of the functions, a stock market
primarily serves three purposes: (1) it facilitates flows of capital
between sectors, including from declining sectors to nascent ones (i.e.,
they are part of creative destruction), (2) they facilitate accumulation
by encouraging investment today on the promise of future growth and
revenue tomorrow, and (3) they facilitate the concentration of capital
by providing a mechanism for raising large sums. He may have more, but
these are three I remember off the top of my head.
Harvey quickly goes on to point out that such institutions have
contradictions in capitalism. Asset markets in general open the door for
speculative investing. Crises can occur when future developments do not
meet earlier expectations. Etc.
In addition, Robert Brenner's books, /The Boom and the Bubble/ and /The
Economics of Global Turbulence/ talk a good deal about international
exchange, investment, finance, etc. He describes, for example, how easy
finance propped up mergers and acquisitions during the 1990s. He also
describes how firms took perverse steps to prop up their stock prices in
order to win finance.
Finally, Lawrence Mitchell's /The Speculation Economy/ discusses the
origins of the stock market and its power in the U.S. economy.
As for graduate school, studying with some of these people might not be
a bad idea. You might be able to do simulation with Harvey's model, but
I doubt he'd be enthusiastic about this. You also need to ask, "Do I
want to do simulations of some idealized financial market or do I want
to study how finance actually comes to be?" The two are very different.
Marsh Feldman
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