CB,
I'm so confused.
Nevertheless, the question is, when the market crashed, was wealth destroyed?
Well call me Homer but I don't get it.
In fact, the easiest way for me to think about it is to think of one share of stock, or one block of stock. Mr. A buys stock XYZ at the IPO for $5. Later he sells it to Ms. B for $100. The stock then goes to $200, but Ms. B, unfortunately, holds on while the stock goes back to $5 and then sells it to Mr. C for $5.
Ms. B lost money on the deal, but do we say her $200 paper value was destroyed? Objectively speaking, her money didn't go to money heaven, she paid $100 to Mr. A and the $200 never existed
The 5$ and 100$ already existed as 'wealth' represented by the asset 'money'.
Wasn't the 100$ of the 200$ 'wealth' that was 'created' by an asset, the share, appreciating in value, which in turn could be used as collateral ie to by a new Platinum watch :o) or a 9$US 'Rolex' in the Beijing market LOL, EVEN if such a loan was never made as in Jays example.
Ms B's Balance Sheet (pro forma ha-ha) now shows an asset of 200$ and the change in position would be reflected by a Profit and Loss statement showing an investment gain of 100$ ????? Questions Questions.
Making Money 'Out of Nothing At All' --- I hope Air Supply forgives the poetic license.
The 5$ and 100$ were simply exchanged for another asset. 100$ of the 200$ share value is an exchange for the share asset which hence appreciated to 200$ market value increasing Ms B's wealth by 100$ (so he didn't need savings :o). The company goes bankrupt, is de-listed, and now the 200$ share is worthless. Now no one wants Ms B's share including Ms B. The day the company went bankrupt Ms B's portfolio decreased by 200$ and hence 100$ of wealth vanished .... or not ?
'Does illiquid wealth make you feel and act like you're rich with liquid wealth?'
My house will be paid in a few years. This causes the bank to offer me large lines of credit on a regular basis. God knows what could happen if I weaken one day and take too much :o)
Send me someone smart with small words, I'm so confused.
regards
Kastel |
