After this morning's plenary panels, I was having this weird thought, triggered by something Charly Kleissner said (I don't recall specifically what, but I'm strongly aligned with his thinking): what if there's such a thing as too much liquidity? We're all taught about how important liquidity is in the function of financial markets, and how an illiquid market in particular will not allow prices to move to the "correct" place.
But we know that buying a house means people get off the couch and deal with community issues. We know that a 'transient' community often is less desireable in terms of safety, in perception if not also in fact. So why would we assume that equity investments in firm should be as liquid as possible?
What if we did something like utterly change the tax structure so that the longer you hold a trade, the less tax you pay? (And simultaneously limit the number of accounts - there's a compliance issue here, but that's resolvable.) Instead of paying longterm capital gains, you DON'T do any such thing; you pay a "flip tax" that gets increasingly steep the more frequently that you trade.
The logic? If people were incented to buy and hold, they would need to invest on the basis of long term value creation. The longer they hold, the more the idea "socially responsible" becomes a hard reality and not a "soft" term.
It's not as risky as it sounds, either. We do know that it's the creation and development of intangible assets that eventually leads to financially (and socially) productive ones. By expanding our understanding of those mechanisms, and tracking that information, the market could very simply be brought more inline with our values, incenting entrepreneurs and investors to make decisions with longterm social benefit.
It brings me to the other crazy idea: the issue was raised in the second panel this morning of what the new "social market" asset class will look like? I wonder if it would make sense to talk about an asset class specifically called "Intangible Assets" that are focused on the creation of one or more intangible assets? In this way we could begin talking about portfolio diversification and a blended approach fairly explicitly, compare returns in different economic environments, provide room for traditional and alternative investors to coexist and experiment, and examine the interaction among different intangible subclasses (How does air quality affect education returns? If you didn't already realize, asthma is a huge component of absenteeism.)
What do you think?
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