I seen where the Stock Market has lost $7 Trillion dollars since Dec. 31 2007. Where does it go?

[NNN0LHI]

Anyone know where the $7 Trillion dollars lost has went to. Its got to go somewhere. Doesn't it? Well, where is that?

Don

[Tansy_Gold]

1. Another question is --

Was it ever there to begin with?


Tansy Gold, who thinks maybe it wasn't

[NNN0LHI]

3. For the sake of argument lets just assume it was there

Where did it go?

Don

[Xenotime]

68. Have you seen the profits the oil companies get lately?

And the pallets of BILLIONS of dollars sitting in Iraq.

All while people go hungry and are losing their homes.

[raccoon]

71. Same place weight goes when somebody loses weight? nt

[papau]

27. not to worry - a trillion U S $ after Bush is not worth near what it was under Clinton

[hobbit709]

2. It's all paper.

You have to remember that this is all imaginary money in that it only exists on paper.

[NNN0LHI]

5. Where did the paper with all the big numbers go?

Doesn't someone else now hold the paper with all those big numbers on them?

Who would that be?

Don

[RUMMYisFROSTED]

70. Much of those paper numbers turned into debt.

Who? Here's a clue:

[RC]

6. It is not even that substantial.

It is just 1's & 0's in some computers.

[NNN0LHI]

9. Any idea who is holding all those 1's & 0's in their computers now?

I am not being sarcastic, I am just trying to nail this down.

Don

[muriel_volestrangler]

17. It never was money - just the 'expected value' of all the companies

At any one moment, only a small amount of each company is actually being traded, with real money swapping hands for that bit. So back in December, they were saying "if the entire ownership of all companies were sold at the same prices now paid for a small share of them, it would be $50 trillion" (or whatever the number was), and now they say "it would be $43 trillion".

There will have been some net transfer of money from someone to someone else - overall, those who sold stocks in December should have gained, at the expense of those who bought then, but you can't work out how much from the valuations of the companies, and it would depend on what they did with the money they gained by selling then.

[DemReadingDU]

74. I pulled my money out of stocks, and bought CD's

The money was just put in a different place

[havocmom]

8. And the paper is only worth what buyers say it's worth

If buyers turn their thumbs down, that imaginary money never existed cuz the paper wasn't worth much.

[Snotcicles]

15. Until you sell it. The value of shares is fluid. nt

[conspirator]

73. We have a winner! The stock exchange is a just a casino where rich people gamble

their imaginary monopoly money, which we, wage slaves are forced to accept in exchange for our time and souls.
Of course we are allowed to play on this casino as well, we're the ducks, they are the poker sharks.

[cornermouse]

4. My guess?

CEO parachutes and salaries. Better not question whether investment into the stock market given recent losses is a bad idea though unless you're ready to hear that the losses only represent 1 or 2%, your money is safe and will only grow, yada, yada, yada....

[mmonk]

7. Some of it is on the sidelines waiting.

Then it will seek places where ever it can garnish return on capital. As the value of US currency stays weak and unaddressed along with any real value in return, it will show up somewhere else on the world stage when the dust clears.

[NNN0LHI]

11. Who's sidelines would that be that it is sitting on?

Any ideas?

Don

[mmonk]

23. Basically world investors, usually large institutional players.

[ldf]

47. the REALLY big money

knows what is going to happen, sometimes even MAKES it happen.

so they sell at the top, get out with big profits, wait for prices to drop (small investors lose their shirts), then move in to bottom feed (accumulate even larger portfolios/control), then start it all over again.

the small investors are always the ones that get hurt, and in the process keep transfering more wealth to the BIG money. that's why a recent study said that they really big money is getting MUCH wealthier, at a MUCH faster rate. they control the game.

that's why, when the excrement REALLY occurs, it won't affect them. they knew it was coming and acted accordingly.

[Tansy_Gold]

69. Maybe on these sidelines?

The black box economy

http://www.boston.com/bostonglobe/ideas/articles/2008/01/27/the_black_box_economy/

<snip>
That something is the immense shadow economy of novel and poorly understood financial instruments created by hedge funds and investment banks over the past decade - a web of extraordinarily complex securities and wagers that has made the world's financial system so opaque and entangled that even many experts confess that they no longer understand how it works.

. . .

The reason this had been happening totally out of sight is not difficult to understand. Banks of all stripes chafe against the restraints that federal and state regulators place on their ability to make money. By cleverly exploiting regulatory loopholes, investment banks created new types of high-risk investments that did not appear on their balance sheets. Safe from the prying eyes of regulators, they allowed banks to dodge the requirement that they keep a certain amount of money in reserve. These reserves are a crucial safety net, but also began to seem like a drag to financiers, money that was just sitting on the sidelines.

. . .

The hiding places for these financial instruments are called conduits. They go by various names - the SIV, or structured investment vehicle, is one that's been in the news a great deal the past few months. These conduits and the various esoteric investments they harbor constitute what Bill Gross, manager of the world's largest bond mutual fund, called a "Frankensteinian levered body of shadow banks" in his January newsletter.

"Our modern shadow banking system," Gross writes, "craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever."

<end snips>

[Junkdrawer]

10. The same place lost socks and America's Imperial Innocence went...

The dustbin of history...

[Subdivisions]

39. Into the top of the pyramid?

Liquid cash assets are being sucked into the very top of the wealth pyramid.

This is a concerted plan to drain all wealth from the middle class. When TPTB are finished, they will own nearly everything and, after all is said and done, we all will be glad to take whatever they choose to give us - unless of course it's a one-way ticket to the FEMA camps.

J6P seriously needs to wake up before it's too late.

[BadgerLaw2010]

12. It's not a loss until you sell or the company ceases to exist.

At that point, yes, money can be vaporized.

Example:

You paid $100 for a share of stock. The company drops to $2 a share because it is dot-com bubble garbage. Someone buys the stock from you at $2 to speculate on a turnaround.

You have now lost $98. No one received $98. The guy who bought from you received something that might be worth $100, but it isn't necessarily worth that much. There are stocks that survived the dot-com bust that will never, ever, be worth what their original high was.

Whatever the actual permanently lost value of the asset is, that money was destroyed.

Another form of destroyed money is in the various forms of financial bets, i.e. options contracts, dirivatives, etc. Think of it this way: You may pay an awful lot of money for a bet that the roulette wheel will come up black. It comes up red. What's your bet worth if you could resell it?

The value of wrong, time-expiered bets is zero.

[JackRiddler]

51. Um, no.

The money wasn't destroyed. You paid $100 and someone still has it.

The value of the stock (a theoretical amount, except at the moment of the sale) lost 98 percent.

But the money you paid for it still exists, and loses value only through inflation.

[NNN0LHI]

13. I can't believe this

Someone can loot $7 Trillion dollars from the Stock Market in just a few weeks time and we can't figure who got it?

Boy whomever figured this scam out is one smart SOB.

I will give em that.

Don

[cosmik debris]

20. Thanks for the compliment.

I sold quite a bit of my stock in the "santa claus rally" and bought it back three weeks later at a 15% discount.

I'd like to thank all the panic sellers that made my retirement prosperity possible.

[Dorian Gray]

32. But won't that be a wash when you have to pay taxes on your sales?

Unless it was in your 401k or your IRA, of course.

[cosmik debris]

33. It is in my ROTH--tax free! n/t

[Dorian Gray]

54. Then you were very very very smart!

I wish that I had the same foresight in my IRA! :)

[cosmik debris]

55. A lot of it was luck

But I won't turn down the cash!

[HCE SuiGeneris]

42. How special are you? You have managed to gloat over others loss

while self-aggrandizing. Good for you!

[SammyWinstonJack]

72. ...

:thumbsup:

[JackRiddler]

56. Nobody lost $7 trillion dollars - it's a metaphor

Other posts above like muriel_volestranglers have explained it for you.

Your basic mistake (or the mistake that the metaphor encourages) is to confuse price with money.

Money is what you use to buy something at a given price. Even if it ends up in a mattress, money does not disappear once in circulation, it just shifts hands.

In this case, stock prices declined, meaning that the theoretical valuation of the entire stock market (the sum of all shares times their current price) declined by $7 trillion as a result.

But current price is always and only for whatever is being sold or bought right at the moment. (For example, if everyone tried to get the current price for all shares simultaneously, then the stock market would hit zero.)

It's the same as with a house, see?

You buy it for $100,000. Later it is valuated at $300,000 because house prices went up, so you are considered to "have" $300,000. But you do not, you only have a house. You did not get an additional $200,000 in cash just because the house now has a higher valuation. You only get the money if you sell it at that price. (You might borrow $300,000 with the house as collateral, however.)

When the assessed market price of the house drops again to $150,000, you may go around saying, "Damn! I just lost $150,000," even though you didn't. What you really lost was the opportunity to sell your house for $150,000 more than is now possible - which is still $50,000 more than you originally paid.

The example applies to the stock market. Shareholders paid a given price X to get shares in a company. As the price rises to Z, they think of themselves as having Z dollars, and having gained Z-X. If they don't sell it and the price falls by a margin of Y so that the new price is Z-Y, then they think they "lost" a total of Y.

But in terms of actual dollars paid, they have only lost if the new price of Z-Y is lower than the original price of X. However, on the day the price drops to Z-Y, the media will report the loss as Y. Got it?

(Technically, a shareholder only loses or gains on a stock on the day it is finally sell it and get dollars back.)

Now don't ask me about bonds, options, margins, futures, calls and puts or derivatives, okay?

[Cruzan]

14. No where. Prices only dropped.

If during the real estate boom people were offering $400,000 for your house and now you can't get offers over $250,000, your house has 'lost' $150,000 in value. In a similar way, summed over a great many equities, the stock market has lost $7 trillion.

[Uben]

16. It;s like owning a house

It is valued at a certain amount, and if the housing market goes down, llike it currently is, it loses value. No money actually changes hands, the value of those stocks just decreases.

[NNN0LHI]

18. But if I paid 100 dollars for a stock and now that stock is worth half that 3 weeks later...

...didn't the guy that sold me the stock just make 50 bucks off of me? Or am I looking at this wrong?

Don

[MonkeyFunk]

21. No

what if the stock had doubled in that time? Did the guy who sold it to you lose $100?

[xchrom]

24. he made fifty bucks only if you paid fifty.

you may have bought the stock for two.

[FormerDittoHead]

29. That's it - you're thinking is wrong and here's how...

Say the company you invested in has 1 million shares of stock issued and outstanding (available for the market).

You buy say, 100,000 shares of that company - you own 10% of that company.

The value of the stock goes down, and the "market" value is taken down by 20%.

BUT YOU STILL OWN 10% OF THAT COMPANY.

It's like the house example that's being given but I will go the other way in my example...

Say the MARKET value of your house goes WAY UP, but you may STILL need a new roof! It's still the same house...

[FormerDittoHead]

40. typo: s/b "your thinking is wrong".

My problem is that I tend to think of different ways to say things then change my mind.

I started with "you're thinking of the wrong thing" and ended up with a typo....

I'm only making a fuss because I DO try so hard to be careful about those things I know are wrong (and worry because there are so many things I DON'T know that I'm probably doing wrong)...

[nick303]

59. Think about the assumptions.

He didn't necessarily take the $100 and put it back into the stock market.

Let's say you were worried about the near-term direction of the stock market, you might sell all your stocks and put it in something like a savings account, government bonds, etc. If a lot of people (or institutions) did that, then that money would be taken out of the stock market.

[JackRiddler]

62. Well, that's what he might think!

Actually, what he MADE was whatever the difference was between the original price at which he bought the stock in the first place and the price of $100 for which he sold it to you, see?

In your example, you haven't lost any money at all - until you sell. You may hold on to it and have it go back up. Or it may drop further. Or you may decide to sell now, lose $50, and cut your losses.

Anyway, all the guy got was $100. He's happy he didn't hang on to the stock now worth $50, but he didn't "make" additional money after he sold it.

[DEMorthem]

19. MONEY IS DEBT

plain and simple, most people simply do not understand this. many people i have talked to raised this very same question: if banks in the U.S. have wriiten down 100 billion dollars of losses than where did the money go??. anser: banks create money out of thin air, it`s called CREDIT ( fractional reserve banking ) when borrowed money is not or cannot be paid back it dissappears from the system it`s GONE!. actual cash in circulation is only a SMALL fraction of the total outstaning DEBT. it is the loss of asset value and the contraction of credit these losses are causing witch is the problem. we are in a GLOBAL credit CRISIS and the "stimulus plan" will not help.

[L0oniX]

34. I keep telling people I know about that. It just doesn't sink in.

[A HERETIC I AM]

22. Did the money that is the difference between what your car was worth new...

and what it is worth to someone willing to buy it now, "Go" somewhere?

No.

It simply declined in value. Thinking that the losses the market has suffered is the same as losing (or misplacing) a stack of $100 bills is incorrect.

[Rosemary2205]

28. Yes, it did go somewhere.

Ford motor company, the dealership owner and the salesman got paid $27,000 for a car worth $22,000 the minute it was driven off the lot. The $5000 between the price and the value was profit or income for someone.

Same with stocks. If my Ford stock is worth $7 now - but I paid $75 for it in 1990 - whoever I bought it from has that money. The value of Ford Motor company didn't just disappear. Billions are being spent on closing US plants and opening Mexican and Chinese plants, Billions are being spent on cushy retirement packages for the big shots that hatched the plan. Billions were spent on dividends for prime shareholders. -- all the myriad of people who make a living off those changes have all that stock value. It's been shifted out of America and into Mexico and China.

[MonkeyFunk]

36. No it didn't

5 years later, when the car is worth 8,000, where did the money go?

[Rosemary2205]

37. The owner has it.

The value of the car didn't disappear. It was consumed. The owner of the car used up that value as a method of transportation rather than pay that value to someone else for transporting them.

I know I have a convuluted way of thinking about it - or so I've been told already. :)

[A HERETIC I AM]

38. Oh, for crying out loud.

My analogy was not a commentary on outsourcing nor was it meant to be a reflection of the peculiarities of priced in profit in the automobile industry.

Stock share prices are arrived at via a bid/ask process - essentially an auction. If you paid someone $100 for a stock, sure, that person has your hundred bucks but YOU also have a stock that YOU VALUED at $100. Otherwise, why did you buy it for that price? 6 months later you decide the stock does not have the appeal anymore (for any number of reasons) and you take it back to the market and put it up for bid. Someone else bids it at $75 and you sell. What happened to the $25.00? Well, technically it is still in the hands of the original seller along with the other $75.00. Do you think that now, since you have suffered a loss of $25.00, you have the right and the original seller has the obligation to give you that $25.00 back? A week later the person that bought the shares from you now sells them for $50. Do you think you should have to give that $25 difference to him?

If you and the OP would answer "yes" to those questions then I submit that there is no way at all you are going to understand the entire process. If your answer is "no" and you get why it should be no, then By Jove, You've Got It!

The price a stock is bought and sold at has to do with numerous factors, not all of them entirely rational, but among them are the perceived potential for the company to be profitable in the future and how profitable it has been in the past. If the perception changes to the extent that the potential for profits in the future has declined, the share price is likely to fall because of that perception. Why would you expect to get the same $100 for a share if it is now unlikely for the share price to climb higher than that in the near future?

As far as you using the Ford Motor Company as an example, you couldn't have picked a worse one - probably as bad as my analogy.

Same with stocks. If my Ford stock is worth $7 now - but I paid $75 for it in 1990 - whoever I bought it from has that money.

First of all, (and I'm sure you just used Ford as a handy example and did not research their share price history) Ford has never traded for $75.00/share. But you're right, if you bought the shares for $75, the seller has your money. So what? The seller was almost certainly not the Ford Motor Company. It could just as easily have been your Aunt Mildred.

The value of Ford Motor company didn't just disappear.

No, the value of their share price was bid down by the market.

Billions are being spent on closing US plants and opening Mexican and Chinese plants, Billions are being spent on cushy retirement packages for the big shots that hatched the plan.

This has very little to do with the value the market places on the shares.

Billions were spent on dividends for prime shareholders.

Not in the case of Ford. Ford stock does not pay dividends, and if I am not mistaken, they have never paid a dividend on their common stock. Ever. It's my understanding Henry was against the idea and they never changed. But that is neither here nor there. The "billions spent" as you say when dividends are paid is merely the company passing profits off to shareholders. Not all publicly traded companies do this and there is no obligation for one to do so.

all the myriad of people who make a living off those changes have all that stock value.

No they don't. If they have shares of the company, their own shares have devalued just as much as yours.

It's been shifted out of America and into Mexico and China.

As much as you might like to think this applies to the question in the OP, and as good as it feels to have that righteous indignation incumbent with that point of view, it is completely and utterly irrelevant to the question.

[the other one]

25. It goes to Money Heaven

O8)

[whistle]

26. The same place missing socks from washing machines go

[AZ Criminal JD]

30. Where are you getting $7 trillion from?

The market capitalization of the New York Stock Exchange was $15.6 trillion at the end of 2007. It certainly hasn't lost almost half of its value.

[DEMorthem]

31. from october 30th 2007

to the present WORLD WIDE equities ( stocks ) have lost 4.3 TRILLION dollars in value ( market capitalization )

[AZ Criminal JD]

41. That seems like a reasonable figure

Worldwide equities have a market cap of about 55 trillion or so. Given the percent decline since October, 4.3 trillion would be a much more reasonable number than 7 trillion if the OP is talking about a worldwide estimate.

[L. Coyote]

35. To the same place as your auto's value when you leave the dealership the first time.

[Mayberry Machiavelli]

43. If a bunch of people think a painting is worth a million dollars, and then, an hour later, decide

that it isn't worth shit, where does THAT money go?

Same place, reinforcing what others on the thread have said.

That's why I HATED hearing, during the tech bubble, that Silicon Valley venture capital firms x y and z have "created more wealth" (during that time) in 10 years than has previously been created in human history etc.

No doubt a great deal of actual wealth WAS created, but the scale of the paper numbers based on pie in the sky perceived value in no way reflected that, and most of that wealth disappeared even more quickly than it was "created".

If you decided a company's stock was worth a thousand a share, and then suddenly realized it was a shitty company and was only worth 50 cents a share, no real wealth was created or lost during that hour, although it sucks for the guy who bought a house based on their anticipated salary working for that company.

[earth mom]

44. It's all monopoly money...except...

that we-aka the little guy-are the ones that pay in the end with higher taxes, higher prices, higher interest rates. Gawd I hate the fucking corporate stranglehold on this country! :grr:

[progressive_realist]

45. I'll attempt to illustrate with an example

Note: I'm not an expert, so I welcome corrections of any errors I might make. The example is vastly simplified from real-world conditions, but should show where the money comes from and goes.

Widgetco decides to go public and sells 1,000,000 shares at $10/each. A syndicate of investment banks sponsors the IPO for a 5% cut. The shares are bought by some combination of individual and institutional investors. By extraordinary coincidence, all of them use the same brokerage to buy, and that brokerage charges a 1% fee on each transaction. Investors bring $10,100,000 from outside the market to buy these shares. Widgetco gets $9,500,000 to spend. The investment banks who organized and sponsored the IPO get $500,000. The brokerage gets $100,000.

Now let's assume by chance that almost all of the shares were bought by dedicated buy and hold investors. 999,000 of the shares are not put on the market, no matter the price. So only 1,000 shares are available for trade. Investor A spent $10,100 for these shares, including the brokerage fee (which is not reflected in the valuation of the shares).

Investor A sells to Investor B at $15/share. Investor B brings $15,150 from outside the market for this transaction. Investor A gets $14,850. The brokerage charges 1% on each side of the transaction, so pockets $300.

Investor B turns around and sells to Investor C at $20/share. Investor C brings $20,200 from outside the market for this transaction. Investor B gets $19,800. The brokerage gets $400.

Now at this point, the market valuation of Widgetco stock is $20,000,000 ($20/share * 1,000,000 shares). But only a grand total of $10,135,350 in actual money has flowed into the market. The original investors (including Investor A) brought $10,100,000. Investor B added $15,150. Investor C added $20,200. The remainder of the $20,000,000 is merely an accounting entry, an estimate of what the shares could be sold for at that moment in time, if they were sold.

Now let's say Investor C gets wind of some troubles at Widgetco and decides to offload her stock to Investor D for $15/share. Investor D brings $15,150 from outside the market for this transaction. Investor C gets $14,850. The brokerage gets $300. The market valuation of Widgetco falls to $15,000,000 because of this transaction, but no actual money was lost by anyone except Investor C, and that was only $5,350. The other $4,994,650 in market loss is again just an accounting entry. No one actually lost that money.

Just to complete the cycle, let's say Widgetco turns out to be another Enron. Widgetco files for bankruptcy, debt-holders claim all remaining assets, and nothing is left over for common stock holders. NOW there is a real loss for all stockholders. The holders of the 999,000 shares that haven't been traded were assuming that those shares entitled them to $9,990,000 worth of Widgetco assets if Widgetco were to fail. But that is a gamble, because common stock does not legally entitle one to anything. In a liquidation, common stock holders get whatever is left over after all other creditors have been repaid, which generally means they get nothing. So those stockholders would have been better off selling at a loss rather than holding worthless shares of a company that no longer exists.

But let's track where the money actually went:

The initial investors, excluding Investor A, lost $10,089,900.

Widgetco got $9,500,000. Presumably some of this went to Widgetco's executive compensation, so they benefited even though the company failed. The rest went to pay business expenses (including salaries for employees) or to creditors.

The investment banks got $500,000.

The brokerage got $101,000 ($100,000 + $300 + $400 + $300).

Investor A got $4,750 ($14,850 - $10,100).

Investor B got $4,650 ($19,800 - $15,150).

Investor C lost $5,350 ($14,850 - $20,200).

Investor D lost $15,150.

If you add up the gains and losses, they each equal $10,110,400. Of this, $10,100,000 was the IPO. The subsequent market movements that doubled the market valuation to $20,000,000 involved only $10,400 in additional money.

Returning to the original question, then, the $7 trillion lost from global markets mostly never existed and therefore vanished back into the ether from which it came. The money that allows brokers, investment bankers, and CEOs to light their cigars with $100 bills does not directly come from changes in stock market valuations, although the two are not completely independent either, since many of the transaction fees are percentages of the nominal value of the transactions. And of course, investment banks, brokers, and CEOs tend to also have personally owned stocks and can gain or lose just like any other investor.

[JackRiddler]

64. Excellent breakdown.

You want to use this in a textbook for school, maybe?

[Rex]

46. It became non-existent. Lost, because the worth fell and depreciated

the value of the stocks in question.

[nancyharris]

48. Don - its a loss of value, not money.

If you buy a 1957 Mickey Mantle baseball card in 2005 for a million dollars and sell it in 2008 for $750K where does the $250K loss go to?

[Egalitariat]

49. Wealth is not a Zero-Sum game. It can be created and destroyed****

nm

[Vanje]

50. Its not gone. It never was.

[NashVegas]

52. Into the Pockets of Those Who Got Off Early

What it lost was value.

If you have an ounce of gold you bought at $800 and the value goes up to $900, you only make money if you sell it. If it goes down to $700, you only lose money if you sell it.

[TalkingDog]

53. Don, lets forget about #'s and stocks. Let's talk something real world.

I'm going to plant a garden this Spring. You will sell the vegetables for me.

Since I plan on planting 100 tomato plants and 50 cucumber plants and 50 squash plants and we figure we'll get about 800 lbs of tomatoes and 250 lbs of cucumbers and 250 lbs of squash.

Let's pretend we've accounted for recouping my seed costs. At today's rates tomatoes are (let's say for simplicity sake) 1.00 per lb
cukes: .50 cents per lb and squash: .50 cents per lb.

Well, it looks like at the end of the summer, we'll have $1050.00.

We can say, we've got $1050.00 bucks, but that's just a projection. We could have a better year and make more, but we could have a drought, squash beetles, tomato worms and those would lower our projected money.

We can't lose money on a tomato that didn't grow or ripen. It's just money we might have, but didn't because it didn't pan out.

Or we could have the produce amounts right, but Farmer Joe down the road has a bigger garden and some yard rats for free labor so he can undercut our price. At market we have to lower ours to compete with him.

So 7 trillion is projected money. The pests and insects and drought killed some of it. Farmer Joe (or in this case China) is making goods so cheap we can't compete.

The money was a projection, a wager on an idea of how much could be made if circumstances were perfect.



My Favorite Master Artist: Karen Parker GhostWoman Studios

[baldguy]

57. The only people who always make money in the stock market are stock brokers.

Think of Randolph & Mortimer Duke in "Trading Spaces".

[A HERETIC I AM]

58. Randolph and Mortimer came out on the wrong side when they tried to corner the market.....

in orange juice.

Don't forget, the end result of their attempts left them penniless.

Not to mention they weren't stock brokers.
They were commodities brokers. Big difference.

Of course, it is just a movie and if it actually had stayed close to the truth, the Eddie Murphy character would not have been allowed on the trading floor, much less the FCOJ pit. It's highly unlikely he could have gotten licensed within the time span the movie relates.

[Zynx]

63. That was the commodities market.

Also, I've made money in the market and I'm hardly a broker.

[althecat]

60. It was just paper value in the first place...... however when it is paper as collaateral for paper

... well then its turns that paper into the corporate equivalent of sub-prime mortgages... the deeper the market falls the messier it gets.

[ileus]

61. dollars on paper, loads of us peeps aren't worth as much today.

[Zynx]

65. Let me try to explain this with an example.

Let's say the whole stock market is 100 shares of Zynx Incorporated. This is trading at $100 a share. Total value is $10,000. Brian Quinn(me) panics and sells the one share he owns at a limit order of $85 and that's the only trade. Someone buys it at $85. The current price of the stock is now $85. Suddenly the total value of the market is $8,500 with a transaction of $85.

Thus, a transaction of $85 can wipe out $1,500 in wealth.

A total of $50 billion in daily trading can wipe out trillions in value. Wealth can be destroyed.

[JackRiddler]

66. It's a cool example but watch your terminology.

Value of the stock in itself ain't what would normally be called wealth. The company's still there, has assets, production, salaries, etc. That's wealth. (Parallel: The house is still there and embodies the same physical wealth, even after the house price drops.)

However, value of the stock represents ownership of wealth (the company). Also, it can be turned into liquid wealth (the cash after a sale)

Now, since companies may own stock of other companies, the value of stock can be counted as asset wealth of the company that owns it. That's a tricky matter of accounting, which outside direct transactions is really more an art than science. You can end up borrowing with the stock as collateral (well, you can't but companies can if the bank lets them). Complicated, eh?

To get a better grasp on it I think of it not as value but valuation - the ongoing process of assessing value, which again is theoretical except in the moment of the sale.

[Zynx]

67. Fair enough. I used the term liberally.

I agree with your assessment of what stock represents though.

[MilesColtrane]

75. Bernake told me it goes to live on a big farm with a loving family in Conecticut...

...where it plays all day with other money, rolling in the green grass, chasing rabbits, and getting petted and loved by the children.