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Stock isn't money. If you owned 50% of the shares of Google you couldn't easily turn it into 50% of Google's market cap. You might be able to turn it into 45%,

Stock isn't money. If you owned 50% of the shares of Google you couldn't easily turn it into 50% of Google's market cap. You might be able to turn it into 45%, but the price right now is the price at the margins to buy ~1 share from someone who is willing to sell one share. If you tried to sell half, you would find radically less people are interested at that price then you would need to sell all of your portfolio.

TheOtherHobbes 8y ago
But you'd also find people would be willing to lend you actual money using your stock as collateral. And if the stock tanks and you default on the loan, it's often the lender that gets screwed. The nominal interest depends entirely on their faith in you and their estimates of future value. There are various standard scams associated with games like this. To keep it simple it's true that stock isn't money. But it's unbelievably easy to turn stock into money without necessarily having to sell it, or without being forced to modify the market rate with a giant stock dump.
- ikeboy 8y ago
  If you take a loan against a massive amount of stock, the lender will almost certainly hedge it by buying options, and the option seller will hedge by selling stock.
- harshreality 8y ago
  But you can't turn a large amount of stock into 100% cash through a loan, either. Many banks will give you <<100% of the stock value in cash, but no bank will give you close to 100% of the value[1]. You get to pay interest on the cash loan, too, which makes it worse than a pile of cash. The scams, as far as I can see, relate to the bank overvaluing the collateral or its liquidity, which is rightly the bank's fault, so it's reasonable that they bear the risk and get screwed. Unless it's a pure scam though, the lendee gets screwed too, by losing the collateral (and a lot more of it than necessary, if it's liquidated at short term lows). [1] Unless the bank is playing the bubble game of collecting interest on the loan and not caring if the loan defaults or the underlying asset drops below the outstanding loan amount (could be either because they anticipate a bailout, or they already got fat salaries and bonuses and don't care if bank goes down in flames, but most of that kind of fiduciary irresponsibility is punished by regulations).

TheOtherHobbes 8y ago

But you'd also find people would be willing to lend you actual money using your stock as collateral. And if the stock tanks and you default on the loan, it's often the lender that gets screwed. The nominal interest depends entirely on their faith in you and their estimates of future value. There are various standard scams associated with games like this. To keep it simple it's true that stock isn't money. But it's unbelievably easy to turn stock into money without necessarily having to sell it, or without being forced to modify the market rate with a giant stock dump.

ikeboy 8y ago
If you take a loan against a massive amount of stock, the lender will almost certainly hedge it by buying options, and the option seller will hedge by selling stock.
harshreality 8y ago
But you can't turn a large amount of stock into 100% cash through a loan, either. Many banks will give you <<100% of the stock value in cash, but no bank will give you close to 100% of the value[1]. You get to pay interest on the cash loan, too, which makes it worse than a pile of cash. The scams, as far as I can see, relate to the bank overvaluing the collateral or its liquidity, which is rightly the bank's fault, so it's reasonable that they bear the risk and get screwed. Unless it's a pure scam though, the lendee gets screwed too, by losing the collateral (and a lot more of it than necessary, if it's liquidated at short term lows). [1] Unless the bank is playing the bubble game of collecting interest on the loan and not caring if the loan defaults or the underlying asset drops below the outstanding loan amount (could be either because they anticipate a bailout, or they already got fat salaries and bonuses and don't care if bank goes down in flames, but most of that kind of fiduciary irresponsibility is punished by regulations).