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It's odd to me that he thinks Wall Street was ever in the business of "creating capital for business". The only thing that can create capital is producing more

It's odd to me that he thinks Wall Street was ever in the business of "creating capital for business". The only thing that can create capital is producing more than you consume and saving the difference. Now I have nothing against trading, speculating, or whatever else most people on Wall Street do. However, I think fractional reserve banking, which creates new money, is an extremely destructive practice equivalent to counterfeiting. Presumably it's fractional reserve banking that he thinks "creates capital". I recently gave a highly upvoted description of why fractional reserve banks are a scam here: http://news.ycombinator.com/item?id=2844528 http://news.ycombinator.com/item?id=2844528 It's a myth that banks create capital by employing fractional reserves. All they do is take purchasing power from some people, give it to themselves, and then charge a toll (interest) to the people they loan it to. It's unethical and it should be illegal. Unfortunately this isn't going to change until people stop believing the myth that printing new money is the same as creating capital.

bwanab 15y ago
I'm assuming that he doesn't really mean "creating capital..." for exactly the reasons that you give. But, there was a day that Wall Street was in the business of capital formation - pulling together relatively small bits of capital from large numbers of investors to apply that capital to projects that would certainly be beyond the reach of normal (i.e. not government) investors. This is a valid business - one which sadly is a smaller and smaller part of what Wall Street does.
rorrr 15y ago
> The only thing that can create capital is producing more than you consume and saving the difference Here are a few ways to create capital without producing anything: 1) Buy wholesale, sell retail 2) Buy in area A, sell for more in area B. 3) Buy all of product X, create a monopoly, sell at whatever price you want 4) Buy product X, hold until price goes up (or manipulate the price), sell 5) Steal
- Astrohacker 15y ago
  Stealing doesn't create capital. It moves it. Your points 3 and 4 also indicate you don't seem to understand the difference between creating capital and moving it. As for buying and selling stuff for a profit, you may not be producing stuff with your own hands, but you are enabling more production to occur.
  - rorrr 15y ago
    By that "logic" the only way to produce capital is to print money. Everything else is moving it.
    - kruhft 15y ago
      Or to borrow it from a bank. See "The Mystery of Banking".
guelo 15y ago
Cuban is referring to when Wall Street aggregates investors' money and gives it to growing companies. Trying to grow by "producing more than you consume and saving the difference" is called reinvesting the cash flow, aka bootstrapping in the startup world. But sometimes companies see a growth opportunity that takes more capital than they can get through cash flow which is when they turn to investors. In Silicon Valley they turn to VCs, but Wall Street is the only place companies can turn to raise the really big money up to billions of dollars.

bwanab 15y ago

I'm assuming that he doesn't really mean "creating capital..." for exactly the reasons that you give. But, there was a day that Wall Street was in the business of capital formation - pulling together relatively small bits of capital from large numbers of investors to apply that capital to projects that would certainly be beyond the reach of normal (i.e. not government) investors. This is a valid business - one which sadly is a smaller and smaller part of what Wall Street does.

rorrr 15y ago

> The only thing that can create capital is producing more than you consume and saving the difference Here are a few ways to create capital without producing anything: 1) Buy wholesale, sell retail 2) Buy in area A, sell for more in area B. 3) Buy all of product X, create a monopoly, sell at whatever price you want 4) Buy product X, hold until price goes up (or manipulate the price), sell 5) Steal

Astrohacker 15y ago
Stealing doesn't create capital. It moves it. Your points 3 and 4 also indicate you don't seem to understand the difference between creating capital and moving it. As for buying and selling stuff for a profit, you may not be producing stuff with your own hands, but you are enabling more production to occur.
- rorrr 15y ago
  By that "logic" the only way to produce capital is to print money. Everything else is moving it.
  - kruhft 15y ago
    Or to borrow it from a bank. See "The Mystery of Banking".

guelo 15y ago

Cuban is referring to when Wall Street aggregates investors' money and gives it to growing companies. Trying to grow by "producing more than you consume and saving the difference" is called reinvesting the cash flow, aka bootstrapping in the startup world. But sometimes companies see a growth opportunity that takes more capital than they can get through cash flow which is when they turn to investors. In Silicon Valley they turn to VCs, but Wall Street is the only place companies can turn to raise the really big money up to billions of dollars.