I’ve been chewing up Michael Lewis’s Panic a few bites at a time over the last few months, but I had a revelation today that shouldn’t be a shock to anyone, really, but I can’t help but post it.

An obvious point about stock market downturns always seems to get lost right after one of them occurs. Stock market losses are not losses to society. They are transfers from one person to another. … What happened to my money? It didn’t simply vanish. It was pocketed by the person who sold me the shares. The suspects, in order of likelihood: a) some Exodus employee; b) a well-connected mutual fund that got in early at the IPO price; or c) a day trader who bought it at $150.

Fundamentally, finance serves to make other things possible: IPOs were there to provide firms capital until they were routinely making money, in exchange for a percentage of future profits [as you ended up with a piece of the company]. Anytime, though, that the pace of the stock market is highly exceeding the growth of the overall economy—probably best expressed in GDP—you’ve got a bubble forming. Why? If market valuations are rising faster than true valuations, you’ve got speculation going on, and folks are likely leveraging to make those plays. How do you make more bets than you can afford? You borrow.

The longer I think about the stock market, the more I like the bond market—if you’re smart enough to appropriately assess risk. I think the full win going forward would be to somehow generate a market for bond risk assessment that is more independent of the financial institutions that currently underpin it. If that becomes reality, and bond rankings come closer to the true levels of risk, the economy should be more stable. Not stable, but more stable.

Conversely, when the stock market is falling faster than GDP, you then follow the other side of Warren Buffett’s maxim: be greedy when others are fearful. A market where capital is leaving faster than the economy is shrinking overall is overreacting to the shrinkage and betting that the shrinkage will continue—but it can overshoot easily.