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Comment by iknowSFR | Hacker News Reader

If you’re asking how does it stop, as someone else mentioned: when the government decides to stop participating in the market.

If you’re asking what happens when this falls apart, my guess is in hyper-consolidation of wealth. That can mean the decreased wealth of the super-rich but with the far greater decrease of wealth of everyone else.

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Why wouldn't the super rich be hit the hardest, aren't the majority of there wealth in stocks? Aren't middle class people more likely to keep there wealth in cash(a larger percentage at least), wouldn't they be the winners here?

Depends what you mean by hardest. Is it worse to lose 10 million dollars but still have 15 million dollars remaining to console yourself with, or is it worse to lose your job that pays $50k?

The wealthiest have minimal need to sell and asset when it's down. So the magnitude of the hit is the biggest, but if you don't use some of your wealth for diversification and the decent financial advice to get you there, you're just squandering wealth.

In absolute terms, the super rich would be hit hardest. In relative terms, the super rich can afford to take a lot of probably losing plays that protect their assets.

Imagine if the super rich spend 2% of their assets to hedge risk (options, etc.). The average middle class person has most of their assets tied up in their house, and probably cannot afford to lose 2% of their asset base to protect against downturns. Certainly, there are few easily available hedges for a decline in the residential real estate market in (random town/city) as opposed to the easy ones for wealth held in stocks.

Who’s on the other end of that options trade?

Well, in 2008 it turns out AIG was on the other side of a huge number of the trades. Or Lehman Brothers. So the answer is, ultimately, the US Government.

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