$1,000,000,000,000 Lost Sep. 28th?

[TrueHeart]

I do not intend this to be a confrontational inquiry. It's a sincere question. There are a lot of different kinds of folks here, from different backgrounds, and I think it might be better to ask this question on a forum like MBTI Central rather than on one devoted to, say, politics or economics.

All the talking heads on television here in the USA have been telling us since yesterday evening (Sep. 28th) that "A TRILLION DOLLARS WAS LOST" in the DJIA drop of 700+ points.

My question(s): in what sense are the words "wealth" and "lost" being used in that statement?

[ptgatsby]

My question(s): in what sense are the words "wealth" and "lost" being used in that statement?

Wealth should refer to the (stock) capitalization of the shares that make up the index. Lost would mean that their capitalization (ie: total shares oustanding (stays the same) * value of shares) was reduced by that amount.

[MetalWounds]

Probably left his trillion dollars in his other pair of pants.


I do it all the time.

[Lateralus]

There's no real wealth lost, since stock is just a claim on company assets.

[IlyaK1986]

There's no real wealth lost, since stock is just a claim on company assets.

You're ignorant. Those claims on company assets were paid with real money.

The stock price*shares outstanding=value of a company. The US GDP is around 13-14 trillion. 7% of that is 1 trillion.

[pure_mercury]

My mother claims to have lost US$13,000 last week, and she owns no stocks outside of her university 401(k), which is administered by TIAA-CREF. That sucks.

[Lateralus]

You're ignorant. Those claims on company assets were paid with real money.

The stock price*shares outstanding=value of a company. The US GDP is around 13-14 trillion. 7% of that is 1 trillion.
It's all imaginary until you have cash in hand.

[IlyaK1986]

It's all imaginary until you have cash in hand.

It's not imaginary because you GAVE cash FROM your hand to get those securities.

[Nocapszy]

It's all imaginary until you have cash in hand.

Even then it's imaginary. Damned thing says reserve note.

[Nocapszy]

It's not imaginary because you GAVE cash FROM your hand to get those securities.

Which can easily be taken away, since it's all just electronic bits in a computer or flammable paper in a file.
Hence his actual point; until you're holding it yourself, it's not really secure.

Jeez... Thinking dominant my ass.

[Lateralus]

Even then it's imaginary. Damned thing says reserve note.
True, I thought about putting a comment about the irony of mentioning cash in my post, but decided not to bother.

[Lateralus]

Which can easily be taken away, since it's all just electronic bits in a computer or flammable paper in a file.
Hence his actual point; until you're holding it yourself, it's not really secure.

Jeez... Thinking dominant my ass.
The only legal claim you can make with a stock is for a share of the company's assets. Period, end of story. What a stock trades for, on the market, has no legal bearing in this sense.

My point was that since real wealth is tangible (land, food, etc.), no real wealth was lost yesterday. No homes burnt down. No crops were lost. All losses were imaginary, market speculation.

[IlyaK1986]

Which can easily be taken away, since it's all just electronic bits in a computer or flammable paper in a file.
Hence his actual point; until you're holding it yourself, it's not really secure.

Jeez... Thinking dominant my ass.

If you think about it that way, anything can be taken away. The point is this:

1) You put in time to work to make money. This time that you put in to do work creates wealth, which you receive your compensation from. Since you created wealth, you receive wealth in turn, which is your money. Therefore, time=money=wealth.
2) You use money to buy security. Therefore, time=money=wealth=security.
3) Security depreciates in value. Now, your time=security-depreciation=wealth-depreciation.

So, to the security's depreciation, you have lost wealth. Same as if a security appreciates, you have gained wealth.

This understanding of wealth, net worth, securities, and all of that, is the business of us people that actually understand finance.

It's basic finance, people. There is no imaginary or real vs. not real here. Just the numbers, and what they mean.

[booyalab]

I wouldn't say that money=wealth. You could make $500,000 a year but if you spend $500,001 a year you do not have wealth.

[Jack Flak]

I wouldn't say that money=wealth. You could make $500,000 a year but if you spend $500,001 a year you do not have wealth.
What if you spend it on Hobo soup?

[Lateralus]

I wouldn't say that money=wealth. You could make $500,000 a year but if you spend $500,001 a year you do not have wealth.
That depends entirely on what you spend it on.

[Brendan]

There's no real wealth lost, since stock is just a claim on company assets.
Right. Essentially it means that the depreciation of stock value has caused us to lose $1,000,000,000,000. It's the same thing that happened with the housing market. The money's just gone.

[Lateralus]

Right. Essentially it means that the depreciation of stock value has caused us to lose $1,000,000,000,000. It's the same thing that happened with the housing market. The money's just gone.
And the same pool of goods are out there to be purchased.

[ptgatsby]

This is entirely too painful...

Which can easily be taken away, since it's all just electronic bits in a computer or flammable paper in a file.
Hence his actual point; until you're holding it yourself, it's not really secure.

Jeez... Thinking dominant my ass.

Nothing is secure. You could have it stolen. People could refuse to barter with whatever you have defined as wealth.

I get paid dividends to my account. I transfer it to my bank account. I go to the atm. I withdraw money. I trade money for food.

Tada! Little bits bought me dinner!

Money tends to be more secure in bits than it does in tangible wealth. Or, do you carry around hundreds of thousands in assets in your pocket? Under your bed?

I wouldn't say that money=wealth. You could make $500,000 a year but if you spend $500,001 a year you do not have wealth.

Well, no, because you spent it. You'd have to keep some in order to have money... or wealth. Money is a store of wealth.

And the same pool of goods are out there to be purchased.

Only so long as you can trade something for them. See, the loss of capital means things don't get produced as much anymore, generally speaking. Means less money is going to shareholders. Means the company is less profitable (typically).

That's the point of an economic contraction - less goods for everyone.

[Brendan]

And the same pool of goods are out there to be purchased.
How so?

[Lateralus]

This is entirely too painful...
Cash is faaaaaar more transferable than any stock. I don't even know why we're having this discussion.

That's the point of an economic contraction - less goods for everyone.
This is wrong. This correction is an adjustment in the monetary value of goods. An economic correction does not arbitrarily imply that there will be fewer goods available. There may be fewer produced in future, but what happened on the stock market yesterday did not destroy existing inventories. No warehouses burnt down.

[Brendan]

Cash is faaaaaar more transferable than any stock. I don't even know why we're having this discussion.
Yeah. That's what we're asking. What cash is transferring where?

[Lateralus]

Yeah. That's what we're asking. What cash is transferring where?
These people didn't have cash. They had something they thought they could trade for cash. They didn't spend physical cash on their stock, anyway. It was all just an electronic entry in a computer.

[Brendan]

These people didn't have cash. They had something they thought they could trade for cash. They didn't spend physical cash on their stock, anyway. It was all just an electronic entry in a computer.
They were properties that depreciated in value, but you give the impression that the money floated to other sections of the economy. Have I misinterpreted you?

[Lateralus]

They were properties that depreciated in value, but you give the impression that the money floated to other sectors of the economy. Have I misinterpreted you?
Are you talking about real estate or stocks?

[Brendan]

Are you talking about real estate or stocks?
Both.

[ptgatsby]

This is wrong. This correction is an adjustment in the monetary value of goods. An economic correction does not arbitrarily imply that there will be fewer goods available. There may be fewer produced in future, but what happened on the stock market yesterday did not destroy existing inventories. No warehouses burnt down.

That's like saying that I took an axe to my chicken, but shrug and say that the number of eggs hasn't decreased, so the only thing that changed was that my chicken lost value.

You are only as accurate as the value of the chicken has remained the same: The eggs are not relevant. In this case, the value of the chicken has decreased because it can't hatch as many eggs... ok, that analogy has gone too far. It's more like you have thousands of chickens and plan on having millions of eggs, except now you can't raise enough money to buy the food for the chickens, and everyone knows it, and so they know you won't be able to produce as many eggs and will have to let your chickens die. All of a sudden, your chicken and egg farm isn't worth as much. The net result is that there are less eggs for everyone. But of course, everything is roughly the same, still, in terms of wealth.

The market, however, measures future value because that's what matters. Funny enough, that story isn't all that far off from explaining why the bank failures could be devestating. And it has a correlation - companies are shutting down capital projects.

[ygolo]

^Yes. The way I saw it too. There is less production capital now, so there will be less production in the future, unless the market capital is restored (which it still a possibility).

Also, even if securities aren't liquidated, they do have a value. Those holding those securities are exposed to the risk of loss of value of those securities.

I switched to what I thought was "cash" a little while ago. But now the money market fund I used is frozen "till market liquidity returns." This "cash" doesn't seem all that secure either. I can't use that money for other investments, and Michelin had to take out a loan to continue operations because they couldn't use their "cash."

[LostInNerSpace]

For starters, all is not lost. We will very likely see a rip roaring bull move starting around mid-october. The time of year is right, the seaonaility is right and the Fed is furiously pumping liquidity into the system. We are witnessing the formation of a perfect storm. That is not to say we will see the start of a new bull market. We could see a bull move that carries us through the end of the year, just fails to takeout highs, and turn south for the (economic) winter. It depends in large part on the sucess of the "bailout", and how well the economy holds up.

Stockmarket "wealth" is not "real wealth" in the economic sense because you can't go out and buy a bag of potatoes or anything else with a stock certificate. You have paper profits or losses until you cash out. But might be able to buy part of another company if you have a lot of stock.

[ptgatsby]

Stockmarket "wealth" is not "real wealth" in the economic sense because you can't go out and buy a bag of potatoes or anything else with a stock certificate. You have paper profits or losses until you cash out. But might be able to buy part of another company if you have a lot of stock.

Hmm, and carrots aren't real wealth because you can't buy potatoes with it...? (Replace at will).

Cash is every bit as real, or fake, as stock. If anything, stock has more tangible value than money. Where money is simply an agreed upon method of paying (the only real value fiat money has is to pay your taxes, and what the law gives you), the stock entitles you to actual assets (last in line, but still) held in 'trust'.

[The_Liquid_Laser]

I do not intend this to be a confrontational inquiry. It's a sincere question. There are a lot of different kinds of folks here, from different backgrounds, and I think it might be better to ask this question on a forum like MBTI Central rather than on one devoted to, say, politics or economics.

All the talking heads on television here in the USA have been telling us since yesterday evening (Sep. 28th) that "A TRILLION DOLLARS WAS LOST" in the DJIA drop of 700+ points.

My question(s): in what sense are the words "wealth" and "lost" being used in that statement?

$1.2 trillion was lost yesterday in stock value. The value of a stock is based on an estimate of its future return on equity. Therefore what was lost was (an estimated) $1.2 trillion of future returns. Of course these prices are always in flux. The $1.2 trillion is the loss in perceived value at the time. Today the perceived value is a little higher. Tomorrow who knows what the perceived value will be?

To be concise: Assets lost $1.2 trillion in value, because the companies won't produce as well in the future.

[IlyaK1986]

Bah...this meta-economics makes my head hurt. Economics is built on enough conceptual bullshit as it stands, and now we're bringing in the metaphysical aspects of wealth?! Are you kidding me?

Whether it's cash sitting in your account or shares or whatever, it's worth whatever anyone is willing to pay for it at that moment, since we're assuming that there are buyers of these securities at any given moment.

Of course, the whole standard of reporting everything to that standard, even highly illiquid securities is what caused this entire mess in this first place. Mark to market on illiquid securities=oops, your securities are currently worth dog shit, meaning that currently, you are insolvent, and therefore, you have a run on the bank and go bust in short order.

But that's a whole different issue.

[Fiver]

The economy losing a gazillion dollars of wealth because of a dramatic decrease in the-dollars-people-are-willing to-exchange for Wall Street shares is the same as this:

I have lost wealth because the amount someone is willing to exchange (sales price) for my house has gone down by 20%. Did I ever really have that wealth? I don't know, but it sure feels like I'm a lot poorer now.


Mark to market is a very important part of the issue (as is the giant sucking sound of rolling lines of credit, used by most companies to fund normal operations, drying up). Change the accounting rule and there is no crisis.