Who profits from bubbles: follow the money

Follow the money: who paid, who cashed out

Every share bought is a share sold, so a boom cannot make everyone a buyer. The Federal Reserve's financial accounts record, year by year, who added stocks and who let them go: households, mutual funds and ETFs, pension funds, foreign investors — and the companies themselves, which buy their own shares back and sell new ones. In the chart, money flows from the buyers on the left to the sellers on the right; the buttons switch between the three booms and the two years after each.

Who paid in and who cashed out, net, in each boom (the ETF lines are explained below):

• 1999–2000, the dot-com boom. Paid in: US companies, through buybacks and takeovers ($451B) and mutual funds ($407B). Cashed out: households, directly ($884B).
• 2006–07, the housing and credit boom. Paid in: US companies, through buybacks and takeovers ($769B) and mutual funds ($268B). Cashed out: households, directly ($1.12T).
• 2020–21, the pandemic boom of meme stocks, SPACs and crypto. Paid in: households, directly ($2.03T). Cashed out: mutual funds ($796B), pension funds ($530B) and everyone else ($172B).

Households, the sector of individual savers, sold $884B of stocks they held directly in 1999–2000, sold $1.12T in 2006–07 and bought $2.03T in 2020–21. US companies — buybacks, takeovers and new shares taken together — were net buyers of $451B in 1999–2000, were net buyers of $769B in 2006–07 and were net sellers of $109B in 2020–21. Foreign investors bought $538B of US stocks in 2020–21 while Americans bought $520B of foreign ones, so the rest of the world hardly moved the balance.

How to read it: a company counts as a buyer when it retires more shares than it issues (buybacks, takeovers paid in cash). ETF shares count as stocks in these accounts, so the boom's ETF wave appears twice: investors paid $1.44T for new ETF shares in 2020–21 (right, money to the funds) and the funds spent $992B of it on stocks (left; the rest went into bonds and other assets). Households are what is left after every other holder is counted.

Sellers: companies print shares when they are dear

For a company a high share price is cheap money: every new share brings in more cash. US nonfinancial companies as a whole usually retire more shares than they issue — through buybacks and takeovers paid in cash — so their net issues were below zero in 45 of the 74 years since 1952, and in every year since 1994. A boom shifts the balance, though not always the same way.

In 2020–21 US companies leaned toward selling: their net issues were −⁠$128B over the two years, against −⁠$340B in 2019 alone and −⁠$553B in 2022. In 2006–07 it was the other way round: companies were the biggest net buyers of stocks near the top, with net issues of −⁠$958B — the largest two-year net buyback in the data up to then. By 2009 net buybacks had shrunk to −⁠$89.1B.

Some companies sold straight into the frenzy. Tesla raised $12.3B by selling new shares in 2020 — more than in the five years before put together. GameStop, the meme stock, raised $1.67B in fiscal 2021 and $3.45B in fiscal 2024; AMC, the other one, $1.57B in 2021. New companies coming to the market are the other big sellers of a boom: see the biggest IPOs.

Wall Street: the toll booth

Brokers, exchanges and investment banks are paid per trade and per deal, not per point of the index, so a busy market is a rich one. Their own reports show the boom of 2020–21 and the hangover after it:

• Coinbase, the crypto exchange: revenue of $534M in 2019, $7.84B in 2021 (×15), then −59% in 2022. Its best quarter, Q4 2021, brought $2.5B; by Q3 2022 it was $590M (−76%).
• Robinhood, the app of the meme-stock crowd: $278M in 2019, $1.81B in 2021 (×6.5), then −25% in 2022.
• Goldman Sachs and Morgan Stanley, fees for underwriting shares and bonds and advising on mergers: $13B in 2019, $25.1B in 2021 (×1.9), then $13B in 2022 (−48%).
• Interactive Brokers, commissions: $706M in 2019, $1.35B in 2021 (×1.9); they held up the next year (−2% in 2022).

Morgan Stanley's filings reach back to the previous boom: its investment banking revenue was $6.32B in fiscal 2007 and $4.06B in 2008 (−36%). By Q3 2026, the last four quarters of Robinhood and Interactive Brokers were above their best year of the boom.

Washington: the tax on cashed-in gains

The government takes its share only when a gain is realized — when someone sells. A boom fills the Treasury twice: more people sell, and they sell at bigger gains. Realized capital gains as a share of the economy are the market's fever chart:

In 2000 Americans realized $644B of gains (6.3% of GDP) and paid $127B of tax on them; by 2002 gains were down 58% and the tax down 61%. In 2007: $924B of gains and $137B of tax; by 2009, gains down 71%, tax down 73%. In 2021 gains reached $2.07T — 8.7% of GDP, the highest share in the records since 1954 — and by 2023 they were down 53%.

The Treasury's estimates of the tax itself end in 2014. For the latest boom the cash shows in the receipts: individual income tax paid outside withholding — estimated and final payments, where most tax on capital gains arrives — rose from $634B in fiscal 2019 to $1.15T in fiscal 2022 (+81%); in fiscal 2023 it was down 25%.

Not every spike is a boom: in 1986 (the top rate went from 20% to 28% the next year; gains +91%) and 2012 (the top rate went from 15% to 25.1% the next year; gains +60%), people sold ahead of a higher tax rate on long-term gains. The strip under the chart is the S&P 500's return in each year, dividends included.

Who is left holding the shares

The sellers' gains were paid by buyers. Those who bought late and held on paid the highest prices — and then watched them fall. The Fed's accounts measure the damage in market value:

After the dot-com boom, US stocks of every kind lost $6.78T of market value from the end of 1999 to the end of 2002 (−34%); the shares households held directly, $3.34T (−40%). After 2006–07: $9.82T (−37%) by the end of 2008. After 2020–21, when households had been the big buyers, their direct holdings lost $5.83T (−19%) in 2022.

Companies can be late buyers too: the net buybacks of $958B in 2006–07 were made at prices from which the S&P 500 fell 39.2% in 2008, dividends included. And the tax is a one-way street: the Treasury keeps the tax paid on gains cashed in on the way up, while losses on the way down can offset only future gains and a limited amount of other income.