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> The investors receive these billions in cash for the stock they sell, and they'll invest in other companies directly, instead of having that megaholding compa

> The investors receive these billions in cash for the stock they sell, and they'll invest in other companies directly, instead of having that megaholding company do acquisitions. That's a really appealing supposition (seriously), in part because the inherent diversification spreads the risk. And there's also the factor that more cash in the shareholders' pockets could mean more job-producing economic demand generally, even if the shareholders just spent the money on yachts and mansions. But there's an empirical question: Is that what actually happens in the real world — or do the shareholders just hoard the money, taking it out of circulation without either investing it or using it to create more demand?

dodobirdlord 7y ago
> or do the shareholders just hoard the money, taking it out of circulation without either investing it or using it to create more demand? Hoard as in like, under a mattress? No. Investors keep pretty much all of their money invested pretty much all of the time, or the banks that they store their money in do by proxy.
- dctoedt 7y ago
  > Investors keep pretty much all of their money invested pretty much all of the time, or the banks that they store their money in do by proxy. That's only true when banks actually lend. In the wake of the Great Recession, however, many banks drastically cut back on their lending — and to that extent they were no more than giant virtual mattresses into which their depositors' money was stuffed. As a Federal Reserve official said in 2015 about the Great Recession's aftermath: "... the sharper decline in outstanding bank loans to businesses that I mentioned earlier was likely a contributing factor to the slower economic recovery we have observed this time around." [0] [0] https://www.bis.org/review/r150417b.pdf https://www.bis.org/review/r150417b.pdf
sokoloff 7y ago
Most investors have a target asset allocation (so much % in stocks, bonds, cash/equivalents) and will seek to restore that allocation when they temporarily have too much cash and too little stock [as a result of selling some of theirs to the company].

dodobirdlord 7y ago

> or do the shareholders just hoard the money, taking it out of circulation without either investing it or using it to create more demand? Hoard as in like, under a mattress? No. Investors keep pretty much all of their money invested pretty much all of the time, or the banks that they store their money in do by proxy.

dctoedt 7y ago
> Investors keep pretty much all of their money invested pretty much all of the time, or the banks that they store their money in do by proxy. That's only true when banks actually lend. In the wake of the Great Recession, however, many banks drastically cut back on their lending — and to that extent they were no more than giant virtual mattresses into which their depositors' money was stuffed. As a Federal Reserve official said in 2015 about the Great Recession's aftermath: "... the sharper decline in outstanding bank loans to businesses that I mentioned earlier was likely a contributing factor to the slower economic recovery we have observed this time around." [0] [0] https://www.bis.org/review/r150417b.pdf https://www.bis.org/review/r150417b.pdf

sokoloff 7y ago

Most investors have a target asset allocation (so much % in stocks, bonds, cash/equivalents) and will seek to restore that allocation when they temporarily have too much cash and too little stock [as a result of selling some of theirs to the company].