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Politics : Foreign Affairs Discussion Group
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To: Maurice Winn who wrote (116187)10/4/2003 5:03:51 PM
From: Lazarus_Long  Read Replies (1) of 281500
 
got people spending money that they didn't really have
I was about to ask how you can spend money you don't have and then it came to me: plastic. That's one way. You charge and the bank has to come up with (at least immediately). Where does the bank get it? Well, it is allowed to loan some multiple of its capital. Net. It hopes (mostly correctly) that by the time it receives the bill for your purchase, someone else will have paid some other credit card bill and it will have the cash to pay yours. What happens if you don't? If enough people don't, the bank gets caught in a cash flow (liquidity) crises and fails. At that point, the Feds move in, shut it down, and pay off off its net indebtedness to creditors, printing money if needed.

Another way that stock market valuation can translate into real $$$$ is if you put up the stock as security for a loan. Then you get some fraction of its market value in $$$$.

Or you can leave in a margin account, where its increased value can be borrowed against to buy more stock whose current owner gets real $$$$.

I think CB is wrong. I think irrational exuberance can result in real $$$$ changing real hands. And if the alleged value of that stock evaporates, there are real consequences.
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