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I think it is an abstraction about how finance is as a whole. I gather you are not in finance, but neither am I. Let's say I'm a fledgeling lemonade stand and

I think it is an abstraction about how finance is as a whole. I gather you are not in finance, but neither am I. Let's say I'm a fledgeling lemonade stand and I want $10 of investment. You give me that $10 and with it I make $15. You wanted a 10% return on your investment so you get back $11. With this model, you have "created" $1 in investments. That $1 originally came from the $15 I made with my lemonade. And all those $15 were exchanges for convenience or sheer happiness gained from having lemonade. So no one really "lost" in this scenario. But I think the finance people call this "creating wealth". Vs other scenarios, where if you invest in someone who is bad at selling lemonade, you only get $8 back, now you have lost $2 from your initial $10. The idea is to continually "create" wealth by making good choices, investing in good lemonade stands vs bad ones. So when someone says x-machination (high frequency trading) has "made" $5B, there isn't necessarily a loss anywhere. That's just how much that came out on top.

etherealG 13y ago
in your example you left out the person that paid for the lemonade. they lost. i think in an idealistic value system, all value is exchanged not created, a lot like energy in physics. not that i'm saying that's a good model for economics, but it's a valid high level thought, and one i think the original poster might have in mind.
- crististm 13y ago
  I'm with you here; but in our world we get a free lunch from the Sun.
- arbitrage 13y ago
  The buyer didn't lose. They got lemonade, which is what they wanted. Everyone wins here.
  - larsonf 13y ago
    I think you are hitting this exactly right. I mean, people 'lose' money all the time for things they get pleasure for. And Even when the thing they gained is very abstract. Like vegas. People lose money almost by definition. Or basketball games. Normal people get a -100% return on basketball games. And no one writes articles how the Grizzlies are somehow not providing value to society. It's the same with capital markets. A lot of people get a huge kick out of speculating on the future. Even if they lose. The capital markets, no matter whether you are an HFT firm in Shoreditch, PIMCO, or some retail investor, are more a game than anything. Everybody wins. No, it's a tragedy when we start saying that people need to rely on the capital markets. Then, sure, there is loss that's not like basketball games or lemonade. It's a horrible, tragic loss. But then you are talking about policy, not speculation. The real question is why on earth do people rely on the capital markets in the first place? Why is this 'loss' different?
- stonemetal 13y ago
  If they can get lemonade cheaper then yes they lost. In this instance there would have been no stand if not for the investor. Chemically speaking the investor is the catalyst that make the whole reaction possible.

etherealG 13y ago

in your example you left out the person that paid for the lemonade. they lost. i think in an idealistic value system, all value is exchanged not created, a lot like energy in physics. not that i'm saying that's a good model for economics, but it's a valid high level thought, and one i think the original poster might have in mind.

crististm 13y ago
I'm with you here; but in our world we get a free lunch from the Sun.
arbitrage 13y ago
The buyer didn't lose. They got lemonade, which is what they wanted. Everyone wins here.
- larsonf 13y ago
  I think you are hitting this exactly right. I mean, people 'lose' money all the time for things they get pleasure for. And Even when the thing they gained is very abstract. Like vegas. People lose money almost by definition. Or basketball games. Normal people get a -100% return on basketball games. And no one writes articles how the Grizzlies are somehow not providing value to society. It's the same with capital markets. A lot of people get a huge kick out of speculating on the future. Even if they lose. The capital markets, no matter whether you are an HFT firm in Shoreditch, PIMCO, or some retail investor, are more a game than anything. Everybody wins. No, it's a tragedy when we start saying that people need to rely on the capital markets. Then, sure, there is loss that's not like basketball games or lemonade. It's a horrible, tragic loss. But then you are talking about policy, not speculation. The real question is why on earth do people rely on the capital markets in the first place? Why is this 'loss' different?
stonemetal 13y ago
If they can get lemonade cheaper then yes they lost. In this instance there would have been no stand if not for the investor. Chemically speaking the investor is the catalyst that make the whole reaction possible.