The Federal Government should mandate that stocks must pay dividends

I assert the following: The Securities and Exchange Commission should mandate that all companies must pay a certain minimum dividend to their shareholders proportional to their earnings, either in cash or in corporate bonds. My reasoning: Almost every major economic downturn in the United States in recent history has been the result of the boom/bust cycle, which in turn is the product of speculation, which drives prices artificially high. Although speculation can fuel growth, if taken too far and out of context it can cause major problems and result in what we see now in the economy: banks shaken, economic recession, government bailouts digging the US deeper into its national deficit hole. Examples of this from the past include the stock market crash in 1929 which led directly to the world wide depression and an entire decade of economic stagnation, Japan's "lost decade" of nearly zero economic growth which resulted when the Japanese asset bubble gradually deflated, the dot-com bubble in the late 90's and early 00's, and the famous "tulip mania" that gripped 17th century Netherlands. The reason speculation does this is because at first there is a buying frenzy; since everyone is buying the asset, it looks like a very good investment and more and more people want to buy. However, this begins to inflate prices rapidly, making the investment seem even better. But at some point, people start realizing that the price has gone too high, and suddenly everyone wants to sell, and the prices collapse. Then, the people who thought they were making an investment at the very end realize that they just lost a huge amount of money. If banks are these investors, the problem becomes multiplied, as people lose confidence in the bank and try to pull their money out, leading to a bank run and possibly a bailout. So we must try to keep the benefits of speculation (money going to those who need it to develop and the more reasoned investment side) and eliminate or at least temper the boom/bust cycle. When you buy a stock, the only reason you would do so is speculation. You expect the price to go up and some bigger fool to buy from you. But the price is not connected to the company whose stock you're buying. If you don't get a dividend or a vote on company matters, you just have a piece of paper with a name on it. It is exactly like OneSeason, where you buy shares under an athlete's name with real money. The price is not directly connected to the athlete's performance, and ultimately what you pay for is numbers on a screen. Although these effects are self-reinforcing so that they function most of the time, once a self-reinforcing process is halted, it collapses entirely and very possibly causes a self-reinforcing process in the other direction - in other words, a halting boom produces a bust. One way to temper this effect in stocks is to directly tie value to the performance of the company - and the easiest way to do that is through dividends that are proportional to the company's performance. In that way (a) if you buy it, you might be buying it for the dividends, so there doesn't necessarily have to be a last fool who loses his entire investment (b) it becomes much easier to tell what you're paying for and (c) it is a rudimentary safety net in that even if you lose a lot of money, you are still getting some back via the intrinsic value of the asset. Some arguments against my proposal and my responses: "The stock market provides the service of channeling capital to businesses that need it – those that want to invest buy stock and those that want to spend sell stock. Tampering with it will hinder the flow of investment." My vision of the stock market will provide exactly the same service, so investment will certainly not be hindered. Also, savings banks provide the exact same service, so even abolishing the stock market wouldn't destroy the channels by which money goes to developing businesses. And if non-dividend stocks are so crucial, companies and investors will simply switch to trading pieces of paper with their names on them in crayon. "This distribution of profits prevents companies from investing in building themselves to the extent that they might want to, slowing the economy down" Any company that really needs to reinvest the money in itself can sell corporate bonds along with the dividend-paying stock, and encourage shareholders to accept payment of dividends in the form of bonds. "If people are willing to pay for them, why shouldn't companies be given the freedom to issue non-dividend stocks? Capitalism will naturally regulate any stocks, whether they pay out or not. If people are willing to accept the risk, let them." First of all, I've just shown that speculation, which is the only thing the stock market currently does, can have a serious negative impact on the economy. Secondly, speculation has to end somewhere, and if there is no real world value the object of speculation, the end of speculation means a huge hit to anyone who invested in the object. However, commodity speculation can end with someone who actually uses the object, meaning it can end without someone at the end losing a tremendous amount of money. Also, this is like arguing that people getting into cars shouldn't have to wear seat belts since they shouldn't be getting in a car with a driver that can crash in the first place.