>The fear is that the flow of finance *through* Wall Street--from investors
>through financial intermediaries and then out the other side in the form of
>capital available to businesses to boost their capacity--is about to come
>to a screeching halt.
You mean like the fact that 1/3 of AOL's revenue comes from advertisements by money-losing companies who are spending their IPO proceeds?
>The idea is that reductions in interest rates will make firms more willing
>to continue to invest to boost their capacity--that if they can't get their
>capital from Wall Street via IPOs (and so forth), they can get their
>capital from banks making low interest-rate loans.
>
>The task--as at least Larry Meyer and Alice Rivlin on the Federal Reserve
>Board see it: I don't know Greenspan's thought in any detail--is to make
>sure that as the stock market declines businesses continue to be able to
>raise capital on attractive terms to keep investment relatively high, and
>thus aggregate demand relavitly high and unemployment relatively low.
In the aggregate, over the last 15 years, money has mainly gone the other way, from firms to shareholders, and not vice versa - well over $800 billion in net stock retirements, thanks to takeovers and buybacks. There are even firms issuing junk bonds to fund their buybacks. A stock market decline may have many nasty real effects, but a shutdown of investment funds isn't high on the list. I'd be worried if I were a Porsche dealer in Palo Alto, though.
Doug