Charles Schwab on "democratic capitalism"

Talking to Chuck


When Mr. Schwab, or "Chuck," as nearly everyone calls him, opened his first brokerage office in 1971, the stock market was pretty much the exclusive sandbox of the richest 5-10% of Americans. Today, thanks in no small part to his company's financial market innovations, investing has been thoroughly "democratized," as he puts it, with more than half of working class adults now owners of stock.

Mr. Schwab describes the Bush administration's capital gains and dividend tax cuts as exactly the right prescription for the ailing stock market after the dot-com crash in 2000-2001. Those tax cuts, of course, are under constant assault by Democratic presidential hopefuls and the Democratic majorities in Congress.
What would be the stock market response to repealing them? "Oh, I think it would probably cost the market 5% to 10%," he predicts. "That may not happen on a single day. But it will certainly suppress prices. And the market is already anticipating these higher tax rates," he assures me, which means stock prices are already being suppressed by tax uncertainty.

Mr. Schwab believes that Americans now live in an underappreciated era of prosperity. "Just drive into any Wal-Mart parking lot and it's just loaded with people, and they're just delving into all of these products that are so cheap. I went yesterday to Best Buy to get a CD player, I looked at the price, and I looked at this thing, and I said, how could it be any good at 29 bucks? I mean, there must be a catch here. I've got to try this thing. Twenty-nine dollars for this incredible CD [player], with earphones and all the things I love to listen to."

"The wealth creation potential of this country is unbelievable; and it's going global," he says excitedly. He insists that one of the best policy changes in Washington in recent years was the Pension Protection Act of 2006, which provided for the automatic enrollment of workers into 401(k) plans. This is going to turn a generation of 20-25 year olds into investors, he says. And he predicts that workers at firms with 401(k)s will become acculturated to saving, and this will vastly expand the investor class in America.

Comments: Read the full article. I found his comments on Sarbanes-Oxley interesting. In sum: hurts small companies! Charles Schwab Investments.

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