Stock market crashes - a way to make the rich richer??

[fishertrop]

It strikes me that the stock market needs crashes from time to time to really achieve what it is supposed to - make the rich richer.

If you look at crashes, large and small, in the last 100-odd years, they all have the same trends:
1) Respected financial institutions make positive noises about stock prospects, the value of stock rises generally
2) The guy in the street starts investing (either directly or indirectly)
3) the guy in the street thinks he knows what he is doing but really he's just a victim in a scam
4) Prices rise further as more people get the good feeling and more people buy-in
5) Prices get really silly, a bubble
6) Credible financial institutions fuel the fire with talk of ever higher highs and a boom that will last forever
7) The smart-money takes out all their money when they think the steam is close to running out
8) This big sell of stock might even be the trigger for a downturn
9) The guy on the street is the last to react
10) By the time he sells and gets his money he's lost a packet
11) The smart-money made huge profits - they have the guy-on-street's losses
12) The smart-money buys stocks at bargin basement prices
11) goto 1

That's pretty much what happened in all the "crashes" in the last 100 years.

The smart players are rolling all the money uphill to them - taking it from us.

I know a load of people who lost lots of money in exactly such a sequence of events in the Tech Stocks bubble at the end of the 90s - yes they see it as bad, painful for them, but it's just one of those things that can happen, almost like it's just the force of nature.......

[Bandidoz]

Yes, undoubtedly.

As well as endowments, 50-year mortgages and pensions.

[isenhand]

I don?t think this is deliberate in the sense that someone plans this behind the scenes but the system has natural cycles like this and anyone who knows what they are doing will ride the wave and make money out of it but for everyone who makes money, there are more that make a loss.

[fishertrop]

I don?t think this is deliberate in the sense that someone plans this behind the scenes....

I don't think there is a solid and planned big-brother, co-ordinated operation but I do think there is a little more colusion goes on behind the scenes than people realise.

In any case, the system is setup so that it gets little people to put their money in on the basis that it is "safe" and a "sure thing" when that's never true - so how come it is portrayed as tho it is?

Without being a straight con-trick, the whole of the system is geared up to getting less knowlegable people to put money into something where others can then take it out.

All those talking heads on the investor channels - do you think their advice is totally without self-interst?

[desertbear2]

Greetings all- my first post from the US

Yes, certainly, the stock market has become quite predatory. Much of this is due to the massive marketing propaganda to sway the small investor- particularly here in the US.

A good example. We had a show on Public Broadcasting by the name of Wall Street Week. It was a long-running and enormously popular show which featured investment managers and pros from the investment industry. In the 2001 tech stock collapse, these folks polled 100% BULLISH for each show throughout the whole market collapse. They didn't want to see the small guy protect his wealth by leaving the market.

The only guest on this show who predicted market trouble- Gail Dudack- was unceremoniously humiliated as the host Louis Ruckeyser publicly drummed her from the show.

[fishertrop]

Greetings all- my first post from the US

Hi desertdear2.

That's an intesrting story, it's exactly the kind of thing that changed my view of western stock markets.

Have you read http://www.financialsense.com/Market/wo ... /1212.html

In the winter of 1929, Paul M. Warburg, the most respected banker of his time and one of the founding parents of the Federal Reserve System, spoke critically of the then-current orgy of ?unrestrained speculation? and said that if it continued, there would ultimately be a disastrous collapse, and the country would face a serious depression. The reaction to his statement was bitter, even vicious. He was held to be obsolete in his view; he was ?sandbagging American prosperity?.