From: "Vladimir Z. Nuri" <vznuri@netcom.com>
Date: Tue, 16 Jul 1996 10:59:31 +0800
To: tcmay@got.net (Timothy C. May)
Subject: brokers as middlemen
In-Reply-To: <ae0fbf7b0602100466fc@[205.199.118.202]>
Message-ID: <199607151748.KAA25534@netcom19.netcom.com>
MIME-Version: 1.0
Content-Type: text/plain



TCM:
>
>I'm watching a CNBC report about the NASDAQ market and proposed fixes to
>certain alleged abuses about stock recommendations, bid-ask spreads,
>brokers, etc.
>
One of the "industry" proposals involving taping the phone calls of NASDAQ
>brokers. (The proposal: 10% of all calls to customers would be recorded for
>later review.)

this reminds me of something else. the stock exchange as it now stands
is not the paradigm of true capitalism as some would have others 
believe. in fact I see it as the paradigm of what might be called
"middleman capitalism", a version of capitalism that is rapidly
diminishing and disappearing in the onslaught of the information age.

essentially, in the new version of capitalism, middlemen who do not
*add*value* to the delivery of a product are going to be increasingly
cut out of the loop. I am not saying *all* middlemen will be cut out,
but many that now exist will be.

in my opinion, the *stock*broker* as his job is now defined is in many
ways the classic middleman that does not necessarily add value to the
information that flows through his hands. if he is just an agent for
carrying out the demands of clients, then I'd say that this role is
going to disappear as markets become more automated, or rather capital
moves toward stock exchanges that diminish this overhead. however, there
are many brokers that add far many more services than mere 
blind investor response, such as analyzing company profitability,
forecasting, etc-- these are adding value imho.

I think the end result of the information age is going to be something
that could be regarded as the ultimate capitalist market-- something
that eliminates all "unnecessary" middlemen. I suspect the stock exchanges
of the future will *not* be regulated because they *cannot* be. it
will be a matter of buyers and sellers choosing the systems that
best suit them regardless of what governments feel is appropriate, fair,
or whatever.

its interesting how the restrictions on stock buying and selling are
becoming quite orwellian in the way they are designed to limit
mere information transfer in many cases, it seems. TCM has written
about this far better than I could in previous posts. ("inside trading"
restrictions).

I think we are going to be moving toward new stock markets that
are diverse (i.e. not only one of them) that have different kinds of
rules for buying and selling. I suspect they will be largely automated,
because the market pressure is to move in the direction of eliminating
unnecessary overhead. isn't a roomful of men chaotically 
screaming "buy" and "sell" orders at each other the epitome of 
what is *not* represented by the information age? the entire process
could be reduced to electrons flowing through wires.

so I think what we are seeing are the last gasps of pre-information-age
economics in which governments feel they have to do things like regulate
stock markets for the concept of buying and selling to work right and
be "fair". I'm not saying that unfairness doesn't exist in capitalism,
but I am saying that increasingly these  decisions of what actually
constitutes "unfairness" are going to be made by the economic players
involved and not bureacrats in governments.

eventually we are going to find that money is actually
a special kind of information
network that helps a society control the allocation of capital and
human resources-- i.e., allocating anything with the property of 
"scarcity".

(for more ideas on "middleman capitalism" vs. "pure captalism" read
Bill Gates' _Road_Ahead_.)