--- Grey Thomas <[EMAIL PROTECTED]> wrote: > In an IPO, new shares enter the system, and the share issueing company > receives some money.
I agree, with an IPO, new money does enter the system. After that, the shares are just exchanged. If a firm is profitable, then money enters the system by increasing corporate or partnership assets, and if a firm has losses, money leaves the system, by decreasing assets. Money enters with IPOs and profits, and leaves with losses. > If the share price increases, the first investor can sell at a > higher price; this is new money entering the system. But the seller receives that money, so the money leaves the system as soon as it comes in. If a person sells shares and uses the money to buy a car, that money is no longer in the stock market. Some money must also be paid to the brokers, and that money also leaves the stock market. > If this later higher price then decreases, the second investor can sell at a lower price; and money has "left" the system, since the third investor puts in less money for the same shares.< But there is still a buyer and seller, with money just being transferred. Whatever money goes into the sytem from the buyer immediately leaves the system as it goes to the seller and the brokers. Where money does leave the system is when the transactions are taxed, since that is a one-way movement of funds from the financial system. > This is shown in Japan, whose Tokyo real estate bubble burst in 1989, > with every Japanese bank being "technically" insolvent > if they marked to market value of their real estate loans. Suppose a bank lends $1 million, with real estate as collateral. The loan is mostly an expansion of the money supply. When the loan is repaid, the money contracts back to what it was. If the loan is not repaid, the money is still technically out there. When the bank writes off (cancels) the loan, this has the same effect of being paid back, except that it reduces the money assets of the bank. The financial problem in Japan, if my recollection is correct, is that the banks have still not written off many bad loans. So they are not allowing the money to officially leave the system, even though in reality the loans are no longer monetary assets. Fred Foldvary ===== [EMAIL PROTECTED]
