Hacker News Reader

Comment by samwise | Hacker News Reader

People assume that 1.2 trillion was lost(stock market). However that money still exists, just the ownership has changed. Today was probably the largest transfer of wealth ever.

In my opinion this is a good thing. You can't have unchecked growth forever. You need to have a downturn to jolt consumer confidence and investor confidence.

View on HN

It doesn't still exist - it never existed in the first place.

correct. its not a wealth transfer. its a wealth revaluation.

or since most ppl assumed they had that money and spent other money on that assumption, it could also be called 'wealth destruction'

Someone said (I think it was in Money as Debt[1]) that "if all debt was cancelled, 95% of the money in the world would disappear instantly."

[1] http://video.google.com/videoplay?docid=-9050474362583451279

So when my portfolio dropped today, who exactly got that money? I didn't sell any stocks, mind you. I just had X dollars worth of stock this morning, and now I have < X.

You buy a car for $20,000. A year later, the Bluebook tells you it's worth $10,000. Who got the $10,000 that you've "lost"?

When your portfolio "dropped" today you didn't gain or lose anything. You still own the same tiny fraction of some company. All that happened is that some guy sold his tiny fraction to some other guy for less than you paid.

Please consider the context of the comment I was replying to. In your example, who "gets" the 10K I lose? No one. A car changing in value is not wealth transfer. A stock going down in value is not wealth transfer.

At least, that's how I understand it. I was curious if the original commenter meant something different.

Yes, you're absolutely right. I didn't realize your question was semi-rhetorical.

that's a poor example. it's called depreciation and is accounted for in the books and taxes, and subsequently market fundamentals

Not of all the value lost is depreciation. A lot of the value is determined by the market. For example, Hondas and Toyotas have better resale than a Ford. The principle is still the same thing basically.

A car is depreciated on the books per standard rules and traditions, generally around 5 years.

Computers are depreciated around 3 years.

The above is true only if a purchase is "capitalized" and classified as an asset. This "depreciation" allows you to deduct a loss per that 3 or 5 years on your taxes, or incrementally decrease your assets on your balance sheet.

If it is not capitalized and classified as an asset, it is an expense. An expense is noted on the income statement and the entire cost is accounted for in that quarter.

I think we're really talking about two different things. You're talking about depreciation as it applies for tax purposes. I'm talking about what's the actual price of a used car. Depreciation tries to make a baseline guess at what rate the value of car will fall, but does not set the actual price of the car in the market.

you're right, we are talking about 2 things, and your approach is more accurate - however. most entities will value an asset based off of a formula, not market price.

Each day, only a small part of a company's stock change hands. However, the price of all stocks change, based on that valuation. That is what happened, a lot of stock was valuated as less then it was before (which means that paper money just disappeared).

A quote from Wall Street is perfect here. "It's not a question of enough, pal. It's a Zero Sum game - somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred - from one perception to another. Like magic."

Bleh accidentally upvoted you instead of downvoted, but this is blatantly false. If money were a zero sum game, then how do we have growth and inflation? The money supply grows, ideally at the same pace the economy grows. Businesses create wealth, and as transactions that transfer wealth grow in number, we need more money to facilitate those transfers of wealth.

The money itself is only as good as the wealth it can purchase, and as that wealth steadily grows, we need more money to carry out the transactions. So it is by no means a zero sum game.

Wall Street is a movie starring Michael Douglas, Charlie Sheen. It is a work of Fiction.

Ah, my apologies then... Although you have to admit, in the context of the discussion, the title is kind of ambiguous.

yup my bad, I forgot to mention it was a movie but i still believe it is a one-sum game, where one person or a company has made more money than they had before, from this bubble.

Just read this http://pavankumar.info/?p=52 , If I am wrong, Please let me know.

OMG. Transfer to who?

you are clueless dude... there is wealth creation and wealth destruction. try an econ 101 course!

wealth can be destroyed when entities default - just as you hint.

wealth could have been transferred today if people were allowed to short securities, but what actually happened to many was the realization of losses on the books of the finance industry - at least those who bought for the short term.

but you also have wealth being transferred to those who have been holding stock for several years (long term) and watched them wildly appreciate over the past 5 years, and started selling in the past 2 weeks when they realized the bubble has burst.

the point is that there is quite a bit ($1.2 trillion) less wealth in the world today than there was yesterday. There are a lot of clueless folks who think when 1.2 tril is lost, someone else made 1.2 tril. It's possible a few people made money today, but the losses greatly outweighed any gains (short-selling, puts, etc).

Reply on news.ycombinator.com