Monday, July 6, 2009

Where did all that wealth go?

Where did all that equity wealth go?


  1. was it ever really there?

  2. Mmm, money is funny stuff. I mean, they were paying city slickers ridiculous sums but they had to pay a lot for their houses too so they are not as rich as they ought to have been been, sort of, as they are all just chasing each other in a rat race, a game of mirrors...

    And then - hey presto the property bubble bursts and then they aren't worth as much as they thought they were unless they got out of shares and equities...

    But then interest rates go down and they are a bit better off again...

    Then someone starts to lend recklessly again and it seems like old times...

    Then you find it's only the government and taxes are going to go up for like for ever to pay for it the temporary reflation and your market is in consequence going to shrink dramatically in the future...

    And they're back up the same old creek again unless you've discovered another way to rip people off and call it 'industry'.

    Funny stuff, money!!!

    B. in C.

  3. To echo what VADO says, it was never really there - it was just an asset price/credit bubble.

    e.g. just imagine I convince you and your bank that a certain painting is a rare old master worth £10 million, and it lends you £10 million to buy it. For a brief period, it appears as if overall wealth has gone up by £10 million ... until of course you find out it was a fake.

  4. If shares represent ownership of a business and if the prospect of those businesses worsens then it makes sense that the value of that ownership interest declines.

    I struggle to get my head around the "realness" of derivatives. At one point there were reported to be more than 500 trillion of the stuff out there. We were told not to worry as they more or less canceled each other out. The numbers seem so large that these things can't be "real". Are these things no longer a danger?

  5. Wealth increases due to productivity gains. Equity prices shooting up is just a price tag. It's the dividends that are the value. If a shop changes all the price tags on its stock overnight to whack on an extra 100%, it's stock hasn't suddenly doubled in value. Even if they manage to sell one or two items at that higher price.

    Stock prices are funny because of the float. It naturally prices stocks as if everybody could sell at the same time to the highest bidder of a single stock.

  6. The money went whence it came - from the vasty deep.