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Trillions in stock market value — gone. Trillions in retirement savings — gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll — gone, gone, gone.
Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?
Or is it just — gone?
If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it's simply the "best guess" of what the stock is worth.
"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."
Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."
Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn't a wad of bills in your wallet, even if the value of your home isn't something you can redeem at will, surely you can lose potential money — that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.
And if you're a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid's college tuition, this "potential money" is something you're counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account.
"That's a big mistake," says Dale Jorgenson, an economics professor at Harvard.
There's a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you'd sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.
"You can't enjoy the benefits of your 401(k) if it's disappeared," Jorgenson explains. "If you had it all in financial stocks and they've all gone down by 80 percent — sorry! That is a permanent loss because those folks aren't coming back. We're gonna have a huge shrinkage in the financial sector."
There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value — like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association's Money Museum in Denver.
Back then, if the money you once had was suddenly gone, there was a simple reason — you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.
But these days, a lot of things that have monetary value can't be held in your hand.
If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen, confident that you'll get good money for them when you decide to sell. And you won't be alone — staring at millions of computer screens are other investors who share your confidence that the value of their portfolios will hold up.
But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.
If you once thought your investment portfolio was as good as a suitcase full of twenties, you might suddenly suspect that it's not.
In the process, of course, you're losing wealth. But does that mean someone else must be gaining it? Does the world have some fixed amount of wealth that shifts between people, nations and institutions with the ebb and flow of the economy?
Jorgenson says no — the amount of wealth in the world "simply decreases in a situation like this." And he cautions against assuming that your investment losses mean a gain for someone else — like wealthy stock speculators who try to make money by betting that the market will drop.
"Those folks in general have been losing their shirts at a prodigious rate," he said. "They took a big risk and now they're suffering from the consequences."
"Of course, they had a great life, as long as it lasted."
© 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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{"commentId":3436112,"authorDomain":"bookworm321"}
{"commentId":3437059,"authorDomain":"head-negro"}
you have been had , and their not going to tell you who has your money..
all that real money you and your company have been investing into your 401k over the years has disappeared an a illusion hocus-pocus
you might want to check swiss and offshore accounts you may find it there
{"commentId":3437059,"threadId":"386059","contentId":"1986286","authorDomain":"head-negro"}
#2 - Sat Oct 11, 2008 1:58 PM EDT{"commentId":3437433,"authorDomain":"kgriffis"}
So what you are telling me is I am losing my mind?
{"commentId":3437433,"threadId":"386059","contentId":"1986286","authorDomain":"kgriffis"}
- 2 votes
#3 - Sat Oct 11, 2008 2:24 PM EDT{"commentId":3437941,"authorDomain":"Zankee"}
{"commentId":3441376,"authorDomain":"blerten"}
Thanks for the laugh, Kgriffis, Zankee! I think laughter's value only grows in inverse proportion to the troubles we face. (It's also darn inexpensive;-)
{"commentId":3441376,"threadId":"386059","contentId":"1986286","authorDomain":"blerten"}
{"commentId":3437575,"authorDomain":"epam50"}
Eric,
This is a cop out! You posed a valid question and then didn't answer it. Your two pompous Ivy League econo-nerds have completely sidestepped the answer. How insensitive can you be? The grandmother in Boise who just had her retirement check reduced to the point where she can no longer pay her rent doesn't understand that her money wasn't really money at all and that “her” loss just translates to a reduction in global wealth. Get your head out of the clouds and act like a responsible reporter.
Answer this question (in print): Last Tuesday, grandma bought a share of Apple for $104. Yesterday, she panicked and sold it for $94. Both transactions were made online through XYZtrades brokerage at no fee. On Tuesday, $104 was electronically transferred from Grandma's checking account to XYZtrades. Yesterday, $94 was deposited into grandma's checking account from XYZtrades. Today, XYZtrades re-sold that share of Apple to one of your Ivy League geniuses for $94. The share of stock went through a buy-sell-buy cycle. The buy to buy share value differential is $10 and coincidentally, Grandma’s checking account balance has been reduced by $10. Who is in possession of that $10.
Be a man and answer the question. Grandma is waiting.
{"commentId":3437575,"threadId":"386059","contentId":"1986286","authorDomain":"epam50"}
- 1 vote
#4 - Sat Oct 11, 2008 2:36 PM EDT{"commentId":3440768,"authorDomain":"jfg"}
Grandma lost $10, but retains her $94. Her $10 have actually vanished, nobody stole them from her. The new buyer hasn't gained $10, he is just betting his own $94 that Apple stock will go up, which may be unrelated to Apple's preformance as a company in the short term due to panic effects, but certainly will be in the long term.
Likewise, those people who bought bank stocks were betting that those banks were good businesses. Unfortunately for them, banks were too busy creating derivative instruments and forgot about their real assets... They got what they deserved and so did their investors. The disgusting fact is that poor grandma will have to pay $3000 in tax to bail out the "system".
Oh wait, no! The U.S. will just print more dollars, so Grandma can be happy if her $94 buy her a loaf of bread next year. Read about the fall of the Weimar Republic and you'll understand what awaits the mighty U.S.A. and the almighty dollar...
{"commentId":3440768,"threadId":"386059","contentId":"1986286","authorDomain":"jfg"}
{"commentId":3440975,"authorDomain":"emartens"}
Actually, Grandma's $10.00 is in the hands of the person she paid $104 to for the share of Apple.
{"commentId":3440975,"threadId":"386059","contentId":"1986286","authorDomain":"emartens"}
{"commentId":3438100,"authorDomain":"ejohnso4"}
I agree with most of article But many of us more conservitive have bipassed the stock market for savings bank certificate of deposits (CD's): cash deposits. Our cash is devalued by inflation caused by the same greed that is destroying our economy. Can you put a value on October 11, 2008 dollars vs same date in 2007 and 2006. This is a topic no one appears to be willing to explain.
{"commentId":3438100,"threadId":"386059","contentId":"1986286","authorDomain":"ejohnso4"}
#5 - Sat Oct 11, 2008 3:22 PM EDT{"commentId":3438325,"authorDomain":"goldnmypoc2"}
Same with the shrinking dollar, value has disappeared.
Value=relative worth, merit, or importance can disolved into nothing
Where'd it go? Into thin air. Gone, kapoot, nil, nada, zilch.
{"commentId":3438325,"threadId":"386059","contentId":"1986286","authorDomain":"goldnmypoc2"}
#6 - Sat Oct 11, 2008 3:45 PM EDT{"commentId":3440100,"authorDomain":"dogslittleacre"}
What I'd like to know is, where did my $18,000-plus go that the FDIC didn't return to me when it took over IndyMac. THAT was real money, and it was real money that I deposited, and was planning to use to stay off the public dole in my retirement years. Tell me how the country benefits by taking my retirement money.
And now the FDIC is insuring deposits for over $200,000. So, am I the victim of bad timing by a few weeks? Why can't they just give me my money? Believe me, what's left won't be going back into ANY bank.
{"commentId":3440100,"threadId":"386059","contentId":"1986286","authorDomain":"dogslittleacre"}
#7 - Sat Oct 11, 2008 6:22 PM EDT{"commentId":3440757,"authorDomain":"gabby3239"}
The question is did you have $82,000 or $118,000 in the bank because if you had $118,000 then that extra $18,000 is gone with the wind because they only insure up to $100,000.
{"commentId":3440757,"threadId":"386059","contentId":"1986286","authorDomain":"gabby3239"}
{"commentId":3440720,"authorDomain":"gabby3239"}
Real estate value and stock value is not the same. While I can agree with the first part of what you said the second part is down right silly. if you pay $50.00 for a share of stock and the company had good management and sold enough products and services to turn a profit the stock gained in value or at worse stayed the same. But if you had poor management and they failed to sale enough products and services to earn a profit, then the company will be forced into making expenses out of the assets of the business and or borrowing to cover the burden of the business and then your stock loses value because the company is using a part of that $50.00 to actually operate the business .
{"commentId":3440720,"threadId":"386059","contentId":"1986286","authorDomain":"gabby3239"}
#8 - Sat Oct 11, 2008 7:17 PM EDT{"commentId":3441227,"authorDomain":"epam50"}
Sorry J.F. Groff you get a D- , Grandma's $10 did not vanish. Independent Ed you get an A+, Grandma's $10 is in the hands of XYZtrades, the broker who sold her the stock. So don't be fooled America, somebody is making money when you lose!
{"commentId":3441227,"threadId":"386059","contentId":"1986286","authorDomain":"epam50"}
#9 - Sat Oct 11, 2008 8:12 PM EDT{"commentId":3441444,"authorDomain":"smuckitelli"}
The concept of money isn't simple. Money is generally considered to have the following characteristics, which are summed up in a rhyme found in older economics textbooks: "Money is a matter of functions four, a medium, a measure, a standard, a store." That is, money functions as a medium of exchange, a unit of account, a standard of deferred payment, and a store of value.
- A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.
- A unit of account is a standard monetary unit of measurement of the market value/cost of goods, services, or assets. It lends meaning to profits, losses, liability, or assets.
- A standard of deferred payment is the accepted way to settle a debt.
- To act as a store of value, a commodity, a form of money, or financial capital must be able to be reliably saved, stored, and retrieved.
We're used to thinking of money in the medium of exchange role. You work for your employer and get paid X dollars per week. You buy a loaf of bread for Y dollars. However, the money described in the article is mainly the unit of account.
In 1890 my great-grandfather bought a good, gold, pocket watch. It probably cost him $25. A couple of years ago I had the watch's value assessed for insurance purposes. It's worth $850. The increase in the watch's value is due primarily to inflation. The watch originally cost a weeks' pay for a senior accountant, which is what my ancestor was in 1890. Nowadays $850 is a weeks' pay for a senior accountant. This is an example of how the unit of account can change over time.
The recent and continuing changes in property or stock values are changes in units of account. Nobody is taking medium of exchange money out of your wallet.
This explanation is necessarily quite simplistic. If you're interested, I can expand on this subject.
{"commentId":3441444,"threadId":"386059","contentId":"1986286","authorDomain":"smuckitelli"}
- 2 votes
#10 - Sat Oct 11, 2008 8:33 PM EDT{"commentId":3442984,"authorDomain":"blerten"}
Hear hear, JoJo! I think we should require emergency financial literacy, age-adjusted, right away, from pre-K to the assisted living centers.
We may not fix the problems, but we'll at least be smarter about them, and work from a common base of knowledge.
{"commentId":3442984,"threadId":"386059","contentId":"1986286","authorDomain":"blerten"}
#11 - Sat Oct 11, 2008 10:33 PM EDT{"commentId":3443927,"authorDomain":"threshold4"}
Don't be fooled, people. This article is a lot of smoke and mirrors. Money does not "vanish", it goes into someone's pocket. The CEOs of some of these failed companies got millions (in some cases - billions!) in 'severence' pay when their companies when 'bankrupt' and where oh where did that money come from? I'm sure the board members and investors didn't empty out their wallets out to provide these guys with those cushy 'retirement' benefits. That certainly accounts for a large chunk of this money that supposedly "vanished" and guess whose money that was? Yep, yours and mine, brother. And the stinker is almost all of these greedy fat cats are going to get to keep ALL of it while you and I are left out in the cold. Believe it - money does not VANISH, it goes into someone else's pocket. Don't let any of these so-called 'money experts' double-talk you.
{"commentId":3443927,"threadId":"386059","contentId":"1986286","authorDomain":"threshold4"}
- 1 vote
#12 - Sat Oct 11, 2008 11:48 PM EDT{"commentId":3444003,"authorDomain":"Giovani1059"}
I feel that the biggest worry is that our hard earned tax dollars are getting trampled by the ludicrous CEOs and we are all being taken advantage of. We as citizens know that you can throw money in the hands of the very individuals that started this catastrophe in the first place. My community came together and discussed this horrific display of how the government is now becoming a socialistic dictatorship on our very land.
Think about it. Why should the government be throwing money at the top, common business sense says you build from the bottom up!
What the government needs to do is take back the 700 billion dollars since it is evident that the rich and greedy are taking this money and as in AIG taking vacation (Expensive ones) and running. We could see companies after receiving the Moines or most of what they can get and will claim bankruptcy and never return the Moines.
It is time for the government to look at this from another perspective. The government needs to take this 700 billion and get it back ASAP and then disperse it throughout the taxpayers 18 years and older who has made less then 200,000 in the year. This will give almost around 300,000 to every person. If you are married that is 600.000. Those Moines will pay off the mortgages, the car loans, the credit cards and all other debts to these devilish corporations and will allow the families to then be able to put money back into the economy because they can now afford to buy that flat screen they have always dreamed of. They can purchase that new car instead of driving a 8-10 year old vehicle that is killing our air and can purchase that Electric hybrid that is better for the world. In turn this will cause the biggest stimuli the world has ever seen.
Government needs to stop listening to the lobbyist and start lessening to the people.
Stocks will rise when every person in America start to invest in the market again because they can! They want to see the upturn put the money in the hands of the people and let them rebuild the markets and the economy.
It is time for the government to WAKE UP!
{"commentId":3444003,"threadId":"386059","contentId":"1986286","authorDomain":"Giovani1059"}
#13 - Sat Oct 11, 2008 11:55 PM EDT{"commentId":3444050,"authorDomain":"smuckitelli"}
LFP#6,
Please read my post #9. In economics, there are more than one type of money. The type of money that "vanished" is not the type of money that lives in your wallet or bank account.
I'm an MBA accountant. I do have an understanding of basic macroeconomics. I have no relationship to Wall Street, other than watching my 401K lose value every day.
{"commentId":3444050,"threadId":"386059","contentId":"1986286","authorDomain":"smuckitelli"}
- 1 vote
#14 - Sat Oct 11, 2008 11:59 PM EDT{"commentId":3446228,"authorDomain":"bobneve1"}
I put my money into a fund. The fund gained interest. I would smile when I saw how much interest was there. BAM 9/11. All my interest is gone! I knew it actually wasn't there unless I had taken out before it disappeared. So I sat tight and hoped it would come back and be there when I was ready to take out. It took 6 years to get about half of it back. BAM (again) the market crashes and not only is my half gained interest gone but some of my principal too. The mattress is looking awful good these days. But I'm an optimist and will hold tight again and hope for better days. I have no choice my plan was to retire next year at 62 looks like I may be working until I'm 90 "want fries with that"?
{"commentId":3446228,"threadId":"386059","contentId":"1986286","authorDomain":"bobneve1"}
- 1 vote
#15 - Sun Oct 12, 2008 7:52 AM EDT{"commentId":3447057,"authorDomain":"smuckitelli"}
There's a bunch of us who look to be working until we die. I'm 60 and I won't be able to retire on my savings and investments, not with the nosedive my 401K took in the past couple of weeks.
{"commentId":3447057,"threadId":"386059","contentId":"1986286","authorDomain":"smuckitelli"}
#16 - Sun Oct 12, 2008 10:20 AM EDT{"commentId":10406477,"authorDomain":"breelaboy"}
{"commentId":10436522,"authorDomain":"brianalampton"}
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