Dumb financial question

[Richard D]

OK. I know I should know this, I think, but when you have everyone losing money, where does the money that was lost go?

[El Supremo]

1. It disappears into nothingness.

Because it really isn't money.

[shraby]

2. Into smoke.

Figure it this way. If I bought a share of stock at 50 dollars a share and when the stock market started to go down and rumors were that it was going to go down much farther, I might make a decision to sell my shares at 40 dollars a share before I lost more. Therefore I lost 10 dollars a share..it disappeared. The guy who sold it to me has made money on it, but he may have similar problems with other stocks. Then the guy who bought it at 40 bucks a share saw the market go down more decides to dump the stock for 25 bucks a share cause he doesn't want to lose more..ergo the original 50 dollars a share stock is now work half what it was.

[Turbineguy]

3. Nobody is losing money

They are losing air. Not even air.

The money left long ago. It was converted into Cottages in the Hamptons, Bentleys and Superyachts.

[Mike 03]

4. Not a dumb question

What we are witnessing is the evaporation (or destruction, they usually say) of wealth. It simply loses its value. It doesn't "go" anywhere. Gross value shrinks.

Also, when you are talking about these more complex instruments, they are leveraged so that there is very little true principle and the rest is backed by these nebulous default swaps or collateralized debt obligations--and the issue here is that no one really understands the true market value of these things. In some cases they are worth pennies on the dollar. It's like Bullwinkle money.

[dysfunctional press]

5. into the ether...it never really "existed" except on paper or magnetic tape or a hard drive.

nt

[On the Road]

6. Rather Than Think of It as Money,

think of it as the value of assets like real estate -- or for stocks, the value of the companies that issue stocks.

When you buy a house or a stock, the money changes hands at the purchase and goes to the seller. After that, the buyer has an asset that can increase or decrease in value. So it's the value of the assets that are going down rather than money being destroyed.

[Idealism]

7. Most of the replies have been

looking to the stock market as an example of as a sort of money transferring into nothingness. while for the markets this is abstractly true, it wasn't money to begin with, more like digits that were moved around, and is only applicable to equities for the most part. wealth ultimately does 'go somewhere' it doesnt dissapear. it may take some time to get to its newest destination but it will be redistributed, unless it is based on a non-tangible item's value as stocks are. through much of the last decade, stock prices have been artificially elevated based on confidence, and deflated by lack thereof. these gains or losses were based off of perceived value, so in the end i dont believe anything was really lost other than confidence

[RoccoR5955]

8. It goes back to the vapor, from whence it came. n/t

[Winterblues]

9. It isn't money that is lost it is worth

If you buy a car that you were told was "worth" five thousand dollars and then go to sell that car and find out no one will pay you that much money because it is no longer "worth" that much. Now it is "worth" five hundred dollars. You have lost $4500.00 on paper. Now depending on how much you actually paid for that car say one thousand dollars you actually lost only five hundred real dollars but lost a huge amount on paper..

[rgbecker]

10. Everyone just "thought" they had the money .

What they had was some stock, or a house or?

The house or stocks were evaluated based on maybe what the last one just like it sold for. But when no one showed to buy the next one, that price had to be lowered so all the property was reevaluated to that lowered price. So it goes until somebody shows up to buy the property at some price. Now that price is lower so everyone thinks they don't have as much money. Truth is, if they still have the property they haven't lost anything yet...wait until they have to sell.

If the bank thought they had a home owner paying them their house payment and they had a house as collateral, the bank told everyone they $xx as an asset. Suddenly, they realize no one wants that house for that price or the owner can't make the payments, and the bank has to revise their estimate of the value of that house/loan. They tell their stockholders that they don't have as much money as they thought and the stockholders say well the stock isn't worth as much. The stockholder goes home, tells her husband the stocks went down. He says WTF, how are we going to retire now?
Everyone decides to vote for OBAMA and hope for a change.

[Incitatus]

11. It wasn't real money.

The stock is worth whatever the last trade was. Say a company has 100 million shares and it worth $10 per share (market cap $1 billion). If at the end of a day where only 1 million shares and the last trade was for $5 the market cap is now $500 million.

[hfojvt]

12. paper wealth is not money. It's not even wealth.

If you buy a stock at $10 and it goes up to $20, you have not made any money or gained any wealth. You don't make money until you sell that stock. Same with losing money. Buy a stock at $10 and it goes to $5 you have not lost any money or wealth until you sell that stock. The people who talk about wealth gains or losses from the stock market are playing with imaginary numbers and imaginary wealth.

[florida08]

13. This is a good question

In the case with stocks while everyone is investing the price/value goes up. But when there are rumors of it being in trouble people get scared and move their money out driving the price/value down. The stockholders lose money as the price goes down because it's now valued at a lower share than what they originally purchased it at. In the case of the banks being taken over however it's different.

Crooked investment banks are consuming retail banks for their deposits to prop up their own losses. Something that should be illegal but they have the blessing of Paulson and the FDIC. Investors who have removed their capital from these banks have created huge bank capital losses who's source of income are loans/interest making them upside down on their balance sheets. The tragedy is that 401K's and retirements are completely gone due to bad loans and credit swaps. It may be all on paper but it is very real indeed. Imagine going to your atm and doing a balance check to suddenly see it say "0"

[Two Americas]

14. wealth

Wealth is produced by labor, not by capital. That is to say, by the working poor not by the wealthy and powerful few. Labor could exist - we could work and feed and clothe and house ourselves - without capital, without the financial industry. Were that not true the human race would never have survived. But capital - the money changers, the investors, the skimmers, the loan sharks - could not exist without labor.

When money "disappears" that means that wealth has been stolen from the working people and moved into the hands of the few by various tricks and deception.

I am not talking Marx here, but rather Lincoln - among many others.

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." - Abraham Lincoln

Even conservative intellectuals are now recognizing that they have gone too far, and that if you totally destroy labor - which has just about been accomplished - the "game" is over for them as well, since their philosophy supports and defends a parasite class. We are seeing the death of the idiotic "libertarian" ideas of deregulation, privatization, and "free markets." I only wish that they would die among the liberal and Democratic party activists, largely upscale people who are in danger of becoming one of the last bastions of support for conservative economics in the country.

[Rabrrrrrr]

15. Money that isn't actual cash (whether physical, or in your bank account), is theoretical money

That is, all the money you have in stocks and bonds is theoretical; sure, you put real money into buying them, but any so-called value of any stock or bond is a theoretical amount at the whim of the market (though bonds much less whimsical, of course).

So if you put $20 into a stock and its value goes up to $100, and then down to $50, you haven't lost $50. And if it goes to $0, all you've lost is your real $20.

Most of the accumulated wealth in the world is theoretical wealth.