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Author Topic:   A lot of organizations and people lost a lot of money - Where did it go?
Minnemooseus
Member
Posts: 3941
From: Duluth, Minnesota, U.S. (West end of Lake Superior)
Joined: 11-11-2001
Member Rating: 10.0


Message 1 of 6 (497087)
02-01-2009 4:57 PM


In the current economic crisis we hear of organizations and individuals having lost a lot of money. Also, owing expensive pseudo-assets such as overpriced home mortgages.
Over the last number of years here in northern Minnesota (not a strong economy even before current times), I saw residential property prices shoot up, and apparently people were getting loans and buying these overpriced items.
Now I presume the people selling these properties made a killing - It was the banks that foreclosed the mortgages that got killed.
Bottom line - Where did all this lost money go?
Moose

Professor, geology, Whatsamatta U
Evolution - Changes in the environment, caused by the interactions of the components of the environment.
"Do not meddle in the affairs of cats, for they are subtle and will piss on your computer." - Bruce Graham
"The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness." - John Kenneth Galbraith
"As democracy is perfected, the office of president represents, more and more closely, the inner soul of the people. On some great and glorious day the plain folks of the land will reach their heart's desire at last and the White House will be adorned by a downright moron." - H.L. Mencken (1880-1956)
"Nixon was a professional politician, and I despised everything he stood for ” but if he were running for president this year against the evil Bush-Cheney gang, I would happily vote for him." - Hunter S. Thompson
"I know a little about a lot of things, and a lot about a few things, but I'm highly ignorant about everything." - Moose

Replies to this message:
 Message 2 by Straggler, posted 02-01-2009 5:01 PM Minnemooseus has not replied
 Message 4 by NosyNed, posted 02-01-2009 5:57 PM Minnemooseus has not replied
 Message 6 by Modulous, posted 02-02-2009 9:02 AM Minnemooseus has not replied

  
Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


Message 2 of 6 (497089)
02-01-2009 5:01 PM
Reply to: Message 1 by Minnemooseus
02-01-2009 4:57 PM


Where Did it Go?
Bottom line - Where did all this lost money go?
Did it ever actually exist such that it could be "lost"?

This message is a reply to:
 Message 1 by Minnemooseus, posted 02-01-2009 4:57 PM Minnemooseus has not replied

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 Message 3 by Agobot, posted 02-01-2009 5:47 PM Straggler has not replied

  
Agobot
Member (Idle past 5529 days)
Posts: 786
Joined: 12-16-2007


Message 3 of 6 (497093)
02-01-2009 5:47 PM
Reply to: Message 2 by Straggler
02-01-2009 5:01 PM


Re: Where Did it Go?
Straggler writes:
Did it ever actually exist such that it could be "lost"?
Virtual over-blown "money". Greed, hopes and unrealistic dreams can blow the value of money out of proportions. Sale and re-sale of dreams is a hell of a business, it only pains when you are on the wrong side of the fence.
Edited by Agobot, : No reason given.

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NosyNed
Member
Posts: 8996
From: Canada
Joined: 04-04-2003


Message 4 of 6 (497094)
02-01-2009 5:57 PM
Reply to: Message 1 by Minnemooseus
02-01-2009 4:57 PM


Easy Come Easy Go
To give the same answer as post 2 and 3 but at much greater length:
For example, let's say you are a farmer and have a storage fridge full of kilograms of butter you have produced. You have over 5,000 kgs of the stuff. Today at the market you sold 10 kgs of it for 4 $ each kg. You calculate that you have 20,000 $worth of butter in storage. Maybe you take that number to your banker and borrow 20,000 $ with it as collateral or maybe you just feel good because you are so rich. Feeling rich you buy a nice new pair of work boots on the way home.
Now say that there is a new diet craze that requires a butter candy. Huge new supplies of butter candy are needed to supply this appetite. Much more butter is needed and you have the best local supply. Today when you went to the market you sold 50 kgs of butter at 10$ each because so many people wanted butter to make butter candy. Now you calculate that you have 50,000 $ of butter and might borrow more money or feeling so rich you buy a better car on the way home.
Oh oh, But the diet doesn't work and ppl get too fat and stop eating butter candy!! The next day you go to sell butter no one needs any more. You manage to sell only 2 kgs at 2$ each. OMG! Now your butter supply is "worth" only 10,000$. You have "lost" 40,000 $ in a day!!!
Actually you still have the butter. You've made a few $ and have the money in your hand. All that has changed is the numbers in calculations you make. They went up, they went down.
However, the bank is now nervous. It thought you were worth 50,000 $ when it lent you money. It decides it needs you to repay some of the money it lent you. But you don't have any money, all you have is numbers. Now the bank is in trouble. Other banks lent it money because it was doing good business lending you money. Now you can't pay and your collateral (house, butter or whatever) isn't worth very much. Those banks demand that your bank pay them but your bank only has numbers too.
Now people who have owned bank stocks that they thought were worth a lot of money (the numbers in the accounts said they were) decide that the banks aren't such a good investment. Just like the value of butter before the diet craze started the value of those stocks ("value" being what other people will pay) goes down and all those people owning bank stocks (like me) feel poorer because their stocks (butter) isn't worth so much to other people.
So the "money" (numbers in computers) really does "disappear". Just like it appeared.
ABE
Of course, some real money was made, you sold some of your butter at a good price. Some people lost some, if they bought high priced butter and got stuck with it. But the vast majority only saw numbers on paper change. Just like most people didn't buy or see a house while the prices were all over the map.
Edited by NosyNed, : No reason given.

This message is a reply to:
 Message 1 by Minnemooseus, posted 02-01-2009 4:57 PM Minnemooseus has not replied

Replies to this message:
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Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


Message 5 of 6 (497096)
02-01-2009 6:07 PM
Reply to: Message 4 by NosyNed
02-01-2009 5:57 PM


Re: Easy Come Easy Go
In other words the "loss" is the money that could have been made if you had somehow known to sell all of your butter at the peak of the market?
Where this gets more serious (maintaining your "analogy") is when you have planned a long term future in the butter business and then suddenly all your butter becomes all but worthless for an extended period of time.
Maybe that is a more practical sort of loss that we can actually identify with.

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Modulous
Member
Posts: 7801
From: Manchester, UK
Joined: 05-01-2005


Message 6 of 6 (497174)
02-02-2009 9:02 AM
Reply to: Message 1 by Minnemooseus
02-01-2009 4:57 PM


economy koan
You build a pond in your garden that you measure to be 5 metres across.
Ten years later a surveyor measures the pond to be 4 metres across.
You scratch your head and wonder - where did the rest of the pond go?

This message is a reply to:
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