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It should be understood that the ongoing financial meltdown, while marked by an "evaporation of paper wealth", is also
conducive to a dramatic shift in the distribution of wealth within the corporate and financial establishment. Moreover, the stock market meltdown has led to decimation of household savings
and pension funds. In other words, these savings are appropriated and transferred into the hands of powerful financial institutions.
Speculative trade, plays a crucial role in this process. The use of speculative instruments (options, hedges, futures) also means
that powerful financial actors, actually "make money" when the stock markets collapse. In other words, the Wall Street financial establishment actually has a vested interest in
sustaining stock market instability.
Amply documented, these powerful financial actors are able to move the market up and down, and at the same time they make money
through the use of these speculative instruments.
A "option" on the Dow Jones index does not imply any paper wealth transaction because it is not linked to the ownership
of stock but to the movement of the stock market index. A "put option" is a speculative "bet" that the market will go down. conversely, a "ask option", is a
bet that it will go up.
What this means is that when the Dow Jones goes down, billions of dollars are transferred to those who had previously purchased
"put options" on the Dow Jones index. In other words, in a bitter irony, large amounts of money are actually made when financial makrets collapse. A similar process may also
take place in currency markets. A common procedure is so-called short selling of national currencies as occurred in the Asian crisis (1997), Brazil (1998-99), Turkey (2001).
Needles to say, none of these derivative trades is accounted for in so-called paper wealth transactions, because they do not imply
a sale/purchase of stocks.
When the Dow collapsed by 5 percent as occurred on July 23, billions of dollars of paper wealth were indeed wiped out. On the
other hand, that same day, billions of dollars of put options were collected, which means cash rather than paper wealth. When billions of dollars of paper wealth evaporate, billions of dollars of
speculative trade money is also transferred (not created) into private money wealth, namely cash.
When the Dow went up the following day (24 July) in what the press described as "a stock market rally" wiping out the
losses of the previous day, billions of dollars of "ask options" were collected, most probably by many of the same institutional speculators who had one day earlier cashed in on their
In other words, these speculators shift their ask and put strategies from one day to the next, using inside information. In
a bitter irony, stock market turbulence leads to increased accumulation of money wealth, into fewer and fewer hands. "Inside information" on factors or political events (eg. the
arrest of the president of Adelphi and President Bush's speech on July 24th is one example of how the the market rebound upwards in the wake of its meltdown on the previous day) is the basis upon
which this wealth is accumulated.
Impacts on the real economy,
banruptcy, decimation of consuemer markets, layoffs, plant closures, decimation of savings and pensions funds, productive wealth is
destroyed, but the command over these productive resoruces is transferred into the upper echelons of the financiaql system, bona fuide corproations which do not routinely speculate or conduct
insider trade, are of course also the victims of this proicess.
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