The Destruction of Wealth

Let’s say you went out to the Market and bought a Million Dollars worth of Stock at the very Peak Price.

What happened?

Well, you gave someone some Money and in turn you received some Claim on the future Profits of a Company.

Now let’s say that almost instantly the Company goes out of Business. Your Claim is against future Profits of $0 and the Market won’t buy it.

Was that Wealth destroyed?

No, are you kidding? That guy who sold you the Stock is walking around with a Million Bucks in their pocket feeling pretty good about themselves. You just lost the same betting on Black. Sucks to be you.

But the truth is that you lost that Money the moment you put it on the table. You traded your nice fungible universally accepted Cash for your very real Claim on future Profits (now Valueless) and the Notional Value that the Stocks held based on the concept that there will be a Market where you can sell them and if not find a bigger Sucker than you, at least be able to mitigate the damage by selling at a Loss.

So when you hear these Gasbag Traders on CNBC (I trust you have the good taste to have blocked Faux entirely) lament about “Destruction of Wealth” they’re mostly having a Pity Party that they’ll have to work harder to Con the Marks.

Why do you think they call it the Mark(et)?