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To: Ilaine who wrote (402)	2/16/2002 3:39:13 PM
From: GraceZ	Read Replies (1) of 443

I tend to agree with Don, that if you are going to talk about money that was "lost" you need to talk about money that was "created" by borrowing to buy stock. It was this created money or leverage which disappeared and accelerated the bust side of the boom. The reason it disappeared is because the loans weren't paid back when the underlying assets deflated and banks went under. Loans are assets in of themselves. Those assets vaporized the same way equity and bonds are vaporizing right now with all the bankruptcies. What turned what would have been just the bust side of a boom into a depression was the tightening of the money supply at the exact moment when it should have been loosened. The Fed loosened eventually but not before they made the error of tightening first. By that time an entire generation had sworn off borrowing for any reason, productive or speculative. Even borrowing for productive reasons is a speculation. It involves unusual risk and reward. Main Entry: spec·u·la·tion Pronunciation: "spe-ky&-'lA-sh&n Function: noun Date: 14th century : an act or instance of speculating : as a : assumption of unusual business risk in hopes of obtaining commensurate gain b : a transaction involving such speculation The source for investing in productive assets should come from savings. In terms of a company, excess cash flow. In a sense when a company goes public and does an offering it is savings that they are tapping, the public's savings. The public is willing to give up their savings for use by the company because they trust that the company will use its own savings or excess cashflow in the future to build the business up further and the equity value will rise along with the value of the business. At least this is the way it is suppose to work. The public got into trouble when the actual return of the stock market was way above the cost of borrowing money. It was this cheap money that created the boom in the market and it was the borrowed money that disappeared.

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