Replies to post #142501 on ajtj99's Market Pulse

[rich ruscio]

OK, I'll take a shot.

Let's be simple, and say that wealth = cash plus assets.

Everything that you write about gets called into question because of the requirement to value assets as cash. That is what mark-to-market is all about. Some examples:

Fraud: I take your cash and give you an asset which is not immediately translatable back into cash.

Madoff: He takes your cash, and gives you a claim on a future stream which cannot exist. (see Fraud).

Assets Marked Up x times: See Fraud. Although, if you bought an asset not worth the cash, there's an issue on both sides of the transaction.

And, on and on. Overpaying for an asset is the requirement to put cash into fraud. The cash still, and will always, exist. The cashable value of the asset, well, not so much.

Separate out cash and assets as wealth.

Take the money and run ...

rr

[arjunah]

Yes, Montana, every single penny! Unless Madoff converted deposits into cash and burned it, every single penny is around somewhere. The feds found about a billion in his accounts. Lots of the money went into his lifestyle and charities he supported. Most of it probably went to the hedge fund and feeder fund managers. Some of those guys were paid tens of million a year!

The person who paid a million for $100K home? Well the seller has that million. And the condo seller has that borrowed $600K. The lender is out $600K less whatever the condo fetches but that $600K given to the seller hasn't disappeared. And the CMOs? Well, that's Neutral Man's "greater fool" theory, and the last fool buyer of the CMO is the one left holding the empty sack. But the money he paid for it hasn't disappeared, the second to last lesser fool has it

See! Everything is accounted for, to the penny!!

The only "wealth" that has disappeared was paper gains that never "really" existed. When a stock hits a new high of say $100, all of the shareholders value their networth at that level, but they can not all sell at the level (unless there is a buyout at that price). The only real value of their shares to them is what they can realize when they sell them. Until then, its just a paper gain, and, as I've explained, when those paper gains evaporate it does not destroy or transfer real wealth.

[gtober]

Not to mention the fact that stocks can go down (and up) in the absence of trades. And since open interest =/ short interest stock movement is not zero sum. So, in stocks, there is real wealth creation and wealth destruction.

In housing, people are rarely ever short home values, so there is also real wealth destruction in a real estate drop.

It's another question entirely how much of the wealth was real and sustainable.