Paper Wealth
Unreal
Recently Elon Musk proposed to buy Twitter in a hostile takeover.
The man is the richest in the world now (so they say) and is worth $250 billion and so it seems he could easily pay the $44billion he was offering it seemed at first.
But then it gets complicated. Musk doesn't have $250 billion in cash. He owns stocks in various companies that were worth that much at the time of offering - so he'd need to convert those to cash to do the deal.
That is; he's worth a lot in terms of speculative paper but doesn't have nearly that much as spendable money.
So he has to either sell his stocks to raise the cash or he has to borrow money using the stocks as collateral.
If he tries to sell $44 billion worth of stocks then the price will fall so doing that would cause the value of his holdings to plummet
I'm sure he can figure it out.
It's a thing I see all the time in the news.
A stock market decline is described in terms of wiping out wealth.
And for stock market speculators this can have serious consequences. After all, they have borrowed money using stocks as collateral.
When the value of the assets that are collateral falls then lenders demand more collateral from the borrowers.
This can lead to a vicious cycle that bankrupts the speculator.
It's a fairly common occurrence. Speculators like to pose as 'risk takers' who are entitled to their rewards and often enough the risk bites them.
A naive view of stocks is that they are shares in a company that entitle the owners to a share of the profit. That is, each year the company gives each shareholder a dividend that is a share of the profits that the company made.
But that doesn't really work.
In general it takes 20 or 30 years for the dividends on a stock to repay the purchase price. That doesn't sound very satisfactory and wouldn't draw investors.
What draws investors is the hope that once they buy a stock then the _price of the stock_ will increase over time and they can then cash out at a profit.
Notice the disconnect here between wealth as the stuff a society produces and financial or financial wealth.
People get rich speculating on stocks in companies that don't produce anything. 20 years ago we had the .com speculative bust.
These days we have bitcoin.
The media presents the stock market as a measure of the health of the economy. I think that that's a distraction from the actual case.
A healthy economy is one that provides the material and social resources that a society needs to prosper. There are measures of that (like the Capabilities Approach) that don't look at stock prices at all.
The banking system stands somewhat apart from stocks
It's based on lending money to those who need it at interest.
But for many technical reasons that has become a crazy system.
You'd think that a bank would be lending money that it takes in as deposits. It's more complex than that. A bank can (these days) lend out 10 times as much money as it has in deposits in it's accounts.
And it can increase the amount it can lend by borrowing money and then it can make loans for up to 10 times that amount too.
And this has evolved into a system of very short term loans - like even overnight. The loans just get rolled over - a new one repays the old one
This system is very complex and prone to breakdown.
But again you get this system where paper wealth magnifies a lot - but that is not directly connected to the society's ability to produce the material wealth we need to survive.
I understand that this system just grew willy nilly because it could in an evolutionary sense.
The complexity of our economic system makes no more sense than the complexity of the biological world.
But I think economics is way simpler than biological ecosystems.
Simple enough that we could actually figure out a better way.
I have many thoughts about that and think it's possible.
I look at ideas like the universal basic income and the capabilities approach and modern monetary theory.
I think we could use our robotic capabilities to make all we need in a society where most people don't work in factories - singing and dancing and study and building might become the normal way of life.
The problem is political of course. None of my ideas would work unless democracy is reformed a lot so it isn't so polarized and irrational,
What do you think
I present regular philosophy discussions in a virtual reality called Second Life.
I set a topic and people come as avatars and sit around a virtual table to discuss it.
Each week I write a short essay to set the topic.
I show a selection of them here.