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Whirlpool effect on the economics
We shall study now how a good investor’s shares market was spoilt by these speculators; by involving government into it, and sinking it into a gambling den. As we know for a healthy economic development we need an investor’s shares market and not a gambler’s shares market. In this study we shall see how the whirlpool of speculation pulls in money from other sectors and how it destroys the economy of a nation in that process.
Gambling is a way of making money or loosing money invented by Man from time immemorial. It is believed that gambling was next to prostitution as man’s time-pass. Not all men are prone to gambling and it is not considered as a respectable way of earning by most of the people. However the desire to take chance is always found in all men and at times that leads to encouraging gambling. If and only if a person wins the gamble he is inclined to take one more chance and if in that again he wins; the desire for more gambling grows. Many psychiatrics firmly affirm that gambling is a vice similar to smoking or drinking. When man takes to it and benefits for first some chances he gets addicted to it and then there is no looking back. For a gambler almost anything is suitable to start the gamble. Speculation is a very sophisticated word given to this vice of man. Healthy economic practices refrain from excessive gambling. Here I say excessive that means gambling in limit is considered as tonic for good economics but then to decide that limit is the true puzzle. And here is where the trouble begins! What is healthy gambling? What is the limit of gambling? We may consider these topics some time later.
How it grows?
Gambling always begins very slow but as the gain and loss circle builds up it gains speed and the gambling at higher speeds are seen to take place (speed of gambling). Loser tries to recover losses and so plays more while winner wants to play to make more money and in this way the process of gambling continues with added strength. More money is required to gain more winning, so money is brought from other sectors of market depriving and at times suffocating those businesses, and the gambling continues unabated. This gains more speed irrespective of whether the player is winning or losing. That means both loser and winner are attracting more funds in the game of gambling. This is called whirlpool effect. Whirlpool because, this effect does the same thing as does the whirlpool of water or the whirlwind. Both whirls have the tendency of attracting things in the surrounding and pull them in the center.
In shares market similar thing happens as in any other gambling. Money from other sectors such as shops, manufacturing, service, building, cinema all such and more activities suffer immensely. I shall give an example to explain this effect.
One person having a shop of hardware was introduced to the shares market as a quick money gaining idea by one agent and he puts some money in the shares of some IT company. He gains fabulously! This turns his eyes and more than him, his wife insists to him that, it is better to do this than do the drudgery of running that small hardware shop. The man puts more money and again wins comfortable margin. He tells it to his fellow men, they also do it and they also get more money. Now all of them begin to feel that it is better to do this than put the money in the businesses they were doing all these years. All goes well until the time comes when the market comes to saturation point and now the market begins to lose. By now these people, who are actually not gamblers but only small businessmen who were doing their profession honestly all these years, begins to lose on their investments on the shares. The agent who had garnered them told them that this phase is not to last long and if they put more money from their regular business everything will be fine. The man saw in news papers and found that the columnist of shares market has also said the same thing. So long they had believed this agent and so now they do the same thing. One of them was supposed to make payment to sales tax the dues but he skips that and prefers to put that money into the shares market at the instance of this agent. He loses and loses and they all keep losing since the market was at its lowest position. All what they had gained was lost and over and above, some loans on the creditability they had, came to sit on their head! They realized that they were wrong in over indulging in this gambling den but it was too late. One of them had to sell his shop to make immediate payments to the broker and now he is without the business. Presently, sales tax department is after him! He does not know where to hide; the other friend of his tried to suicide but did not die! We read news of suicides by investors in other places.
This is not a solitary example. Similar things have happened to all the investors from the middle class and small business class communities. Many businesses have suffered just because the businessmen and owners of these businesses diverted funds to shares market during bull period and as a long spell of bear is going on they are all in a fix. No future to these people. I asked one of my friends who is a good operator; he told me that gambling in not the game of every body. Only gamblers should play it. Ordinary people should keep out of it. I asked him, why this has happened to these simple people, they are broke. This has happened in India and also in Europe and in US, that means all over the world simple people are affected by this fever of gambling. Why this is happening and how to remedy it. He told me that this is happening because people still think that shares market is an investors’ market whereas it is not so! If these people knew that they were gambling and not just investing they would not have dared do it since ordinary people prefer to invest their hard earned moneys and not gamble it away.
How simple investment activity turns into gambling? I asked him; he explained that speed of activity turns simple investment activity into a gambling activity. One cannot even know when the change has taken place. Do you mean to say controlling speed of activity shall help save simple investors? Simple investor becomes a gambler during bullish period and only when the bear starts he realizes his mistake but then it is already too late. At present there is no specific directive to separate investors’ shares market from gamblers’ shares market and that is the main cause for this debacle. What is the characteristic difference between a simple investor and a gambler? I asked; he explained; until gaining phase you do not see any difference but when the loosing begins simple investor tries to shrink from the market while the gambler is still in force, he enjoys even loosing! That is the sign of a true gambler. They even cut jokes on the way they lost!
We know horse race is a sure game of gamble and so we do not see ordinary people indulging in that; that way they are saved from the type of fiasco they suffered in the shares market. I suggest that this clear demarcation between the investors’ shares market and the gamblers’ shares market should be made to save simple and not gambling people from such damage. I had in my previous article suggested to use different demats for these two different types of markets. This correction should be done in all the world over stock markets to save simple people in all the countries and not only in India.
Our shares market was converted into a gambling den during 1990 and onwards. This was done at the insistence of the World Bank and IMF. These banks wanted to loot developing countries stealthily. They wanted their star gamblers from mostly US and Europe to put their small funds in Indian Market and pump out our foreign exchange in the end. To make it easy these Banks forced our gullible governments to devalue Rupee so that in less Dollar they can play on our market! At beginning it all appeared very rosy and as more Dollar came in and our rupee became apparently strong all small minded economist from our country thought the best thing has happened but it was only a trap. They forced to first devalue rupee so that they can get the best out of small investment. To remedy that our gamblers artificially hiked the prices of our shares and that way they made some compensation. Every body thought Indians are gaining but it was not the thing to be. Every time market gained in they sold shares and that way they took away booty out of the country. We were actually losing our precious foreign exchange in this way. Nobody bothered. Our great economist Manmohan Singh and his gang of lesser brains were thinking that the country is benefiting but in the process what was happening was exactly reverse! This fellow from Oxford was exalted by all and sundry economists from our country and was depicted as the great redeemer of Indian economy. Finally it was to happen as too much gambling can cause to the market and that happened. First in the US where this madness of indulging in the gambling in the shares market commenced. The debacle was pushed on housing to avoid blame on the real culprit and to save the face of the American extra smart economist from the World Bank and the IMF. Luckily our country was least harmed since the people indulging in this market were only a small number.
I know gamblers shall continue their habit and they can do it since that is one way of economics and at times it helps also. They justify it by saying life is a big gamble and no body can save from it. I suggest to our government to put clear demarcation in the two types of shares markets so that while gamblers continue and enjoy the play others can do there investment and stay safe if they want to invest. Use of two different Demats will do the work. Investors’ Demat account will allow only one transaction in ten days and it shall cost nothing to the holder, gambler’s Demat will allow any number of transaction on that account and it will cost per transaction some fees. That means while making your Demat you will have to specify what you want to do, investment or gambling .
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