If the S&P 500 dropped 20%, that's about a year's growth. Long-term investors who bought before that would be poorer than they thought they were, but they're not worse off than they started and there wouldn't be any particular bill to pay. If they're a long term investor then they can wait for it to come back. (A similar argument could be made for larger drops.)
The real suffering comes from whatever effect there is on the rest of the economy due to a recession, more layoffs, etc.
No, asset values are not like energy. There's no conservation rule.
When stocks get bid up, market valuation goes up far more than the amount of money that changed hands. Most of the market cap appears "out of thin air." It's just what people think it's worth.
And when the stock goes down again, it goes back where it came from.
The investors who bought stock at too high a price lose some of the money they put in, but there are others who never paid that price.
But thats the point. Your last sentence is the problem:
Investors proping up stuff by 20%, 401k and etf etc. regularly invest, investor drop out.
Who loses? 401k and etf.
Money was transfered.
Same shit happen to my company share: Price jumps 40%, company has to buy them because of employer benefits, I auto buy them, price falls back by 40%, what happened?
Investors extracted money out of the company and me.
In fact [fiat] money does appear out of thin air (well, created by banks when they originate loans) - and has to to support a growing economy. Unfortunately, for various reasons, rather too much has been appearing, and has been funneled to the already wealthy.
This doesnt fix the systemic issue. Most people put their money in a target fund and leave it alone. Those target funds are at risk of being forced to buy these over-inflated assets. The incentive to do this is there because those target funds and naive investors exist.
The diverse investment is the reason that funds will be forced to buy these worthless stocks. It's a direct transfer of money from the working class to the extreme capital class.
If you're good with that, I'll send you my PayPal so you can get me my 5 bucks. It's a tiny fraction of your overall cash flow, whats the big deal?
When you destroy pensions by crushing organized labor, create 401k incentives, and place your new captive audience by default into a certain investment class, a whole lot of people are going to leave it there. Whether the provider forces anyone to do anything is irrelevant, it creates second order impacts that ultimately lead to what is perhaps the greatest attempted fleecing in market history
Pensions also invest in stocks, though the difference is that pensioners have no control at all. Of course, they also have guarantees of a certain level of income.
I think the main problem with the 401k is that not enough people actually contribute to one. Or they don’t put in enough.
But I very much doubt the average person who’d invested enough over several decades in a 401k feels like they got fleeced.
Until someone can come up with a better option though...
Note that a pension plan that invests for you blindly is no better - either the returns are so bad that they are a scam, or they are investing in stocks anyway and so you get the same results but less control. Similar for things like social security, they are either worse options or you need to pump stocks.
This is what financial capitalism and "democratizing finance" has meant in practice. Rich people have access to different types of investments, and by the time those trickle down to common investors the juice has all been squeezed out. Whatever the trend is, by the time you hear about it the market has already been arbitraged by faster investors with more resources.
We are not going to come up with a market-based solution to fix income inequality. The solution, as much as people in the dwindling middle class resist it, is a strong social safety net coupled with a hard reset on taxation and housing policies. Nobody should be homeless, nobody should be allowed to starve, but you might have to accept that your 401K goes down in exchange for a government guarantee of housing and food.
This is hard for people to accept because they currently have equity in their home or a 401K to save them from starving. But those are transient, individualistic solutions. You can lose your house. You can lose your 401K. Society should be taking care of each other in a broader way than letting everyone accumulate a little, private pile of money.
I didn't even mention venture capital because the win rate is so low. When you have billions already, then maybe you can buy $10M lotto tickets that get pitched to you. If you're a regular guy and want risk exposure like that, you can buy penny stocks.
Everyone is so fixated on the winners, that they completely forget (or aren't even aware) that there a many many times more losers.
I think people understand that there are losers. What they are complaining about is that the losers can dump $10M on a lotto ticket and not feel any pain when it disappears. If all those with money are are placing huge long-shot bets and cashing out when they win then what does that say about the state of the system, and markets in general? I don't know exactly, but I don't think it's good.
When money is cheap you take it. Google sees all the capital waiting to pour into these AI IPOs, and correctly assumed they could tap into that with little dilution.
It makes good financial sense for a company to sell shares when the price is high and do stock buybacks when it's low. I guess they think the price is on the high side?
Also, selling shares puts them in a better position to survive a downturn (more cash, less debt).
In a real competitive market it would never make financial sense to do stock buybacks because competition is so fierce you need to invest it all in R&D and sharp prices for your customers. See the Chinese EV market.
Stock buybacks are also a tax trick.
They're just holistically evil and should have never been made legal.
Google is also issuing a bunch of debt this year. It sounds like they need a lot of capital and want to keep a particular debt/equity ratio, rather than having a strong opinion on their share price.
Nvidia is not losing anything if their stock falls.
So whats left? The typical candidates of course: We poor people. 401k, ETF, etc. we pay the bill.