Note: No one pocketed that $1.1 trillion today. There is no law of the preservation of wealth.

[Zynx]

Money does not conform to the conservation of mass and energy laws we have in physics. Allow me to explain:

1. First and foremost, there are not equal numbers of people long and short at any one time. Not even close. As such declines in shares do not simply offset between those who are long and those who are short.
2. Stock prices reflect the most recent prices at which those stocks have been bought or sold. A stock declining 10% does not require anywhere near 10% of its shares to be trading to suffer that decline. Here's an example:

Zynx Corporation has 10,000,000 shares outstanding at $100 a share, or a $1,000,000,000 in total market value. On Tuesday, 5,000 shares traded at $90 a share, forcing shares to decline $10 a share. $100,000,000 in value was destroyed with only $450,000 in shares actually traded.

Now that is an extreme situation, but the example holds in the market in general. So no, no one looted that $1.1 trillion in lost market value. The vast bulk of that is gone, at least for the moment.

[elleng]

1. No?

'Death' Tax?

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x389085

[Zynx]

2. ? I'm not talking about that at all.

[msongs]

3. its only a loss if you sell out at the reduced price instead of holding it nt

[Zynx]

4. Even under that argument what I said still holds.

[A HERETIC I AM]

5. Bingo. n/t

[Tallison]

8. Pensions, IRAs and 401k portfolios are among the casualties

I don't even want to look at the value of my family's.

[mckara]

6. Most of the Value Went to Money Heaven

Usually, failed stocks go to pension funds to die.

[sixmile]

7. The market makers can account for much of that

Though shorts do not account for all profit made in drops. Market makers and traders can (depending on their net cap requirements) sit in short position all day and even overnight at larger firms, then cover their position later. So in part, every time a stock goes down someone is making money.

[Zynx]

9. Someone is making some money, but they do not offset entirely.

[sixmile]

12. If the value of a stock goes down that money is being made

It may not be one guy, it may be across twenty or thirty balance sheets, but it never disappears. I used to work on a large trading desk and was an NYSE Principal, I know what I'm talking about.

[Zynx]

14. National wealth accounting said otherwise during our last bear market.

National wealth declined by several trillion. If wealth cannot be destroyed it similarly cannot be created.

[sixmile]

16. What do you mean?

I'm not saying the trades or profits are made here or stay here. Or even that at the end of the day if a trader made a killing on a short position that it wasn't offset by a good beating on another position. Most traders are responsible for several stocks at once. Some they make money on some they lose. At the end of the day their goal is to stay within net cap requirements and show a profit.

[Zynx]

19. Then we aren't even talking about the same thing.

[rgbecker]

13. Maybe. If someone guessed correctly.

[Tansy_Gold]

10. Look at it another way.

5,000 shares traded at $110/share, boosting the value of the other 9,995,000. That increase only exists on paper. There's no real wealth created.

and when a different 5,000 shares trade for $105 the next day, the resulting "loss" is similarly only on paper.

These aren't investments; they're speculative trades. Regardless how they're accounted for on the balance sheets of whoever actually owns those shares, they're only worth what someone else is willing to pay for them -- or the underlying value of the corporation as a generator of wealth.

The current system has forgotten that. It's all about speculation, not about generating wealth. And that's why the bail-out is such a horrible horrible idea in terms of truly "fixing" the economy.

[Zynx]

11. I guess those failed banks are only on paper too, huh.

[Tansy_Gold]

15. that's not what your OP was about.

sheesh.

[Zynx]

17. No, it was what your post is about. Firms have failed due to "paper losses".

Yours is about those mortgage backed securities that have been marked down on paper that have destroyed several firms now.

[Tansy_Gold]

22. No, mine was NOT about MBSs.

It was about hypothetical shares of stock in a hypothetical corporation.

Mortgage backed securities never entered into the equation.

[YankmeCrankme]

20. They failed because they had debt they couldn't pay, not because their stock decreased. nt

[Zynx]

21. I wasn't talking about their stock. I am talking about how they had paper losses on their MBSs

and other securities that made them insolvent.

[Tansy_Gold]

23. What your OP talked about WAS stock.

You edited it at one point, so I don't know what it may have said, but this is what I responded to:
<zynx>
Money does not conform to the conservation of mass and energy laws we have in physics. Allow me to explain:

1. First and foremost, there are not equal numbers of people long and short at any one time. Not even close. As such declines in shares do not simply offset between those who are long and those who are short.
2. Stock prices reflect the most recent prices at which those stocks have been bought or sold. A stock declining 10% does not require anywhere near 10% of its shares to be trading to suffer that decline. Here's an example:

Zynx Corporation has 10,000,000 shares outstanding at $100 a share, or a $1,000,000,000 in total market value. On Tuesday, 5,000 shares traded at $90 a share, forcing shares to decline $10 a share. $100,000,000 in value was destroyed with only $450,000 in shares actually traded.

Now that is an extreme situation, but the example holds in the market in general. So no, no one looted that $1.1 trillion in lost market value. The vast bulk of that is gone, at least for the moment.
<end zynx>

Nothing about MBSs. Nothing about banks, failed or otherwise. Nothing about shorts. Just stock prices.

When you've figured out whether you want to play baseball, bowling, craps, lacrosse, or polo, let me know. But don't jump from one field to another.


Tansy Gold

[Waiting For Everyman]

18. Same as the RE market, and derivatives are next. The longer they

are not voided, the more loss in equity. Equity is diluted to a fantasy non-existence by them. They need to be kicked out of the system all at once.

Pop it! And outlaw it.