Brexit crash wiped out a record $2.1 trillion. Now what?

[workinclasszero]

Source: CNN

A record $2.1 trillion was wiped out from global markets on Friday.

That means more money vaporized as a result of the Brexit crash than any single market day ever, according to S&P Dow Jones Indices.

It eclipses the $1.9 trillion that was erased on September 29, 2008 when the U.S. Congress infamously voted down the Wall Street bailout. The larger losses in the Brexit fallout partially reflect the fact that markets are retreating from higher levels these days.



Read more: http://money.cnn.com/2016/06/27/investing/brexit-consequences-2-trillion-lost/index.html?iid=hp-stack-dom

[Wellstone ruled]

1. Closing in on 3 Trillion as the day grows longer.

[Cracklin Charlie]

2. Vaporized?

How does that happen? Would it not be true that if someone lost 2 trillion in value, that someone else gained 2 trillion in value?

These things always seem more like robbery, to me.

[Igel]

7. No, that doesn't follow.

Try these scenarios.

1) I bought my sweet-sounding violin, a Neuner, in an out-of-the-way spot decades ago. It's label says it's over 200 years old. Assume I take it to an appraiser who tells me that the instrument really was made in 1812. That makes it very valuable. Let's say it's appraised at $14k. I bought it at under $1k, so woo-hoo!

Perhaps I merely list it as an asset--it's wealth, after all. $14k.

Then let's assume there's now doubt about the instrument. It goes out for a second and third appraisal, and it turns out that the label is from 1812 but that the instrument itself was made in 1912. It's worth $1400. At best.

If I didn't sell it, where did that value go? Answer: No place. It only existed because of demand. Similarly my mother bought a house for $160k. A decade later, it was worth $260k. Where did the value come from? Nowhere. No actual money is involved--just appraised value, it's speculative. But in 2009 it's value was $150k. Where did that $110k go to? No place. It wasn't real money. It was assumed, appraised, appreciated value. My mother said the "bankers" stole it. No bankers, no actual $, were involved.

2) Back to my fiddle. Let's assume I had actually sold it based on that first written appraisal for $12k. Then the new owner got it appraised for insurance purposes and found it wasn't really 200 years old. That owner paid $12k but it's worth $1400, the thing lost $10,600 in value. I have real money as a result, but I acted in good faith. The person bought it acted in good faith. The first appraiser screwed up, didn't benefit in the least from the deal, so let's say he acted in good faith.

Again, nobody stole anything. The buyer bought a violin and it turned out to be worth less than he expected. I may have benefitted, but that's incidental. It wasn't a scam. Such things really do happen--or, even worse, something that's unique loses value because more are found.

3) Similarly, the house I live in was originally bought for $125k. Two years later, after the owner defaulted in late 2008, it was sold for just under $100k. What happened to the money? Nothing. Demand dropped, appraised value changed.

Well, the developer got his $125k, and that's what the house was worth at the time--he wasn't responsible for the market value of the house. The bank would have actually lost money, because under default it got what the REI folks paid for it, around $90k; the owners declared bankruptcy and that was a loss, and they'd paid off very little of the capital (and nowhere near $30k in interest). Fortunately for the bank, most low-cost mortgages require mortgage insurance, and that's the only thing that kept the bank from losing a lot of money. The REI folk made money, around 10% on their investment after holding it for 10 months or so, so they did well. But they didn't get money from the bank or from the developer or the first owner, they got it from me (and my mortgage).

Now the house is appraised at something like $130k. I got that "value" from nobody. And if I sell it and the housing market collapses, I get the $ and somebody else loses the value. If the housing market collapses before I see it, I lose value. But no cash is changing hands. Appraised value isn't the same as actual money.

It's all paper value, paper assets, based on demand and what people are likely to be willing to pay. It's like having a $50 ticket to a basketball game. "I'll give you $200 for it," a friend might say--then the winning team suddenly loses its star player and the guy says, "Sorry, not interested," and, if you can't go, perhaps nobody's willing to buy it from you even for $1. Did anybody "steal" the money from you? No.


Same with the stock market. $3 trillion is lost? Stocks lost value. The last seller got the higher value, and while the current holders held onto the stocks they depreciated. Nothing's stolen, assuming that the markets were manipulated to yield this result. If the prices go back up, the money's not returned. It's all appraised, "likely resale value."

[vintx]

3. This instability has far reaching implications

which will impact workers in several countries.

It's sad to see these things always framed in terms of how they affect investors. But perhaps spooking investors is a lower risk than spooking the working class

?

[iandhr]

4. Many of that loss is in 401k's and pensions.

It is not just wealthy people that will be hurt.

[Rex]

5. Financial Crisis Cost Tops $22 Trillion, GAO Says

'The 2008 financial crisis cost the U.S. economy more than $22 trillion, a study by the Government Accountability Office published Thursday said. The financial reform law that aims to prevent another crisis, by contrast, will cost a fraction of that.'

http://www.huffingtonpost.com/2013/02/14/financial-crisis-cost-gao_n_2687553.html

So I guess we can expect ten times that number over the years...great just what the world did NOT need.

[randome]

6. That's okay because only the super wealthy are affected.

[Igel]

8. For some, the discomfort experienced by the 1% is worth the agony experienced by those less well off

[former9thward]

9. No, it didn't vanish.

It will come back and fairly quickly as investors come to their senses. The value of the assets remain the same. The only people who "lost" anything are people who foolishly sold stocks at a lower value on Friday, assuming Brexit was the reason they sold them.

[ljm2002]

10. You mean a bunch of money-wranglers...

...got their nuts in a twist, panicked and ran around yelling SELL! SELL!! SELL!!! and the result was a paper loss of value worldwide that will likely recover in whole or in large part in the near future, when they figure out that (a) nothing happens for at least 2 years and (b) the sun still rises in the morning.

[randome]

11. Pension stocks and 401(k)s took a beating, as well. And inflation will be right around the corner.

The people who voted for Brexit were only thinking of themselves, not the larger picture.

[Starry Messenger]

12. My mom lost money for her retirement.

For the people saying it will recover in a few years--she's in her 70's. How many years does she get to wait?