Where did all the money go?

[leftofthedial]

Not to be overly simplistic about it, but is it all just funny money (phony capitalist crap, theoretical "equity" in non-liquid assets, worthless paper and the like) that no one seems to have anymore?

If so:

a), is it not a good and necessary thing to set the economy back to reality once in awhile?

b), is not the concept of "wealth" in our society a meaningless and arbitrary abstraction, utterly divorced from any concept of actual value?

[Fovea]

1. complex questions

the first, good is relative. This correction will kill.

the second yes, it has. We have reached the end of the days of fiat currency and leveraged affluence.

[Hello_Kitty]

2. The problem is that many people leveraged that phony equity and the bills are due.

If your house went up in value $500k two years ago and then lost all that value but you didn't tap into it, you are fine. If you mortgaged 100% of that, you are screwed and so are your creditors. That said, a lot of those creditors were complicit or at least should have known better so let them take the bath.

[leftofthedial]

5. re your mortgage example,

Does that not call into question the validity of the notion of a "mortgage"? or at least the notion of equating a theoretical (in that you did not sell your house) asset with value. BTW, neither of you is "screwed." You got $500K to use; the lender got your property (or a claim on it).

I agree. There is no ambiguity in saying that foolish lenders should pay for their mistakes. In a predatory lending environment, though, it is more difficult to "blame" a borrower, who has no special expertise in that market.

[KGodel]

7. Good Question

It appears that hundreds of trillions of dollars are outstanding.

There are not hundreds of trillions dollars in the entire world economy.

We're supposed to make good on fantasy wagers that were made on margin by irresponsible gamblers so they can keep their games going? Bail out the Wall Street Casinos?

Screw that. Wipe out the winners. Wipe out the losers. Use the remainder to fix some of the damage. Anyone caught on the premises is prima fascia guilty. They knew they were playing a fantasy game. Time for them to wake up and be forced to smell the coffee. Losers lose. Winners lose. WE win for a change.

[leftofthedial]

15. the imaginary bubble had no clothes all along.

[barb162]

28. Using those houses as piggybanks was the dumbest thing ever.

But a lot of people were doing it.

[madrchsod]

3. there was`t any actual money

[CJCRANE]

4. But the taxpayer still has to pay for it! nt

[dixiegrrrrl]

9. Since there is not any acutal money, I will pay mine in ...

dryer lint.
or used garlic peels.

[leftofthedial]

6. so, our entire global economy was based on an abstraction,

a hypothetical value of something that did not really exist, a notion, a formerly convenient lie.

In which case, its collapse will be painful, but should not be a cause for regret.
'
Unless of course one was a party to the lie.


Capitalism is a con game. It always has been. It has now begun destroying itself.

[GoesTo11]

8. It wasn't all funny money

I dollar cost averaged in for years and have a lot less real money than I earned and put in. That's not to say it disappeared. But it was real money for me and it's gone for me now.

[leftofthedial]

11. sounds like someone saw you coming.

[GoesTo11]

13. The entire 401k-industrial complex saw me coming

This was a giant scam to get people to put their real money in so Merrill Lynch's top 1000 executives could take out real money for producing nothing. Of course some normal people put their money in cash early, but most didn't or the market wouldn't be the market. The thing is that the whole thing was overpriced and had the appearance of growth based on fraud - at the company, market and nation level.

[leftofthedial]

14. I'm sorry for your losses.

:-(

[Joanne98]

23. We need an investigation of the Mutual fund managers.

They just sat there and like the little guy ride it all the way down. They did the same thing with Enron.

[barb162]

29. And you know what? They're still selling the same line!!!

Keep dollar cost averaging, keep putting your money in stocks...it's a great time to buy. Bullshit it is!

the appearance of growth based on fraud: bingo!

[Common Sense Party]

22. How many shares do you have?

How many shares did you have last September?

[GoesTo11]

25. I have the exact same number of shares, I suppose

they're just worth half as much each. My 401k that was in stock (most of it) lost close to 50%, like most people's.

[Common Sense Party]

26. Yes, the shares are temporarily down in value.

How temporary?

It may take 5 or 10 years before they come back to the same price they were at a year ago.

But you still have the same number of shares in the same companies which are making the same products and selling the same services that they were a year ago...

Most accounts are down 35-40% in value. Some funds more, some less. But I haven't lost any money. I cannot say "it's gone for me now." It is only lost when you sell your shares for less than what you paid for them. I'm not selling, because I have 25 years until I retire.

Same thing with your house. It's down in value from what it was, and maybe from what you paid for it. You only lose money, though, if you have to sell the house at a loss.

Home prices fluctuate. Stock prices fluctuate. That's what markets do.

[GoesTo11]

30. Who knows?

I haven't moved out of stocks.

The DJIA as a percent of GDP (in millions) has fluctuated mostly between 0.5 and 1 (though it was much higher than that in 1929). It just dropped from 1 to 0.5 in a year. Should the ratio become lower than that? It spent a few years around 0.3 around 1980, but that preceded the biggest boom in history. Are we entering a new world where companies are just worth less than ever? Corporate profits have been between about 7% and 14% of national income for the last 80 years at least. I don't see why they would drop below that range for the long term. And GDP is going down a percent or two, but not by half. So all in all, I expect things will go back up.

But I am also pretty sure I lost real money so far - I invested by buying stock that I thought was worth x. I think it really was worth 1/2 x, that it was overpriced due to a mass program of deception. I bought it believing that it would grow 7% or so until retirement. Now it would have to grow 13% or so. If this is just bad luck, stocks go up and down, then I would say it wasn't real money lost. But what I think happened is that a bunch of rich folks, IPO'ers and hedge funds bought low and sold high to a bunch of 401k suckers over the last 15 years. When they sold, they made real money.

So I think both that we have lost real money and that market returns will go back to some reasonable level like 7%-8%. Right now, we might not be at the bottom, but there's a lot less distance to go down than the drop that has already occurred. If markets drop another 51% from their peak, they'll be negative.

[Warpy]

31. The whole system inflated on "promise to pay"

People who sold houses just before the air started to leak out of the real estate bubble look like they did really well and the suckers who got stuck with their houses did poorly until you realize the sellers also had to live somewhere and probably sunk the profit into a bigger place based on their promise to pay in the future and the merry go round just kept turning.

All the obscene wealth at the top is based on the promise of a lot of poor folks at the bottom to pay 3 times the price of their homes during the life of a mortgage and gawd knows how many times the price of the furnishings on their credit cards plus at least twice the price of their cars and who knows how many times the price of their education. The whole business was built on a job economy that no longer produced anything concrete, manufacturing having been sent offshore.

The system is collapsing because the emperor has no clothes and a promise to keep the money rolling in is no good when the jobs disappear.

The money is disappearing because it was never really there in the first place. It was only the promise that the money would really be there in 10, 20, or 30 years.

When an economy is based on debt, this is what happens.

[Hannah Bell]

10. I was listening to the radio today talking about the global situation.

Seems everyone's in debt.

To whom is the money owed, is my question.

"No one" has money, but "someone" must have most of it & be sitting on it.

"In a depression, money returns to its rightful owners."

[leftofthedial]

12. I think most of the meltdown has been exploited for its diversionary value.

We're all worried about the Dow and the "credit freeze" and the banks that are too big to fail.

Meanwhile, the scum are happily draining us of whatever actual wealth we once had.

I figure at some point in the distant past there was a real "dollar" worth of value sitting there. Criminals (with enough political clout to decriminalize their crimes) managed to wave hands, tap dance, derive, lie and cheat until everyone believed that original dollar was really worth about ten thousand bucks. Now the $10K balloon has popped and we've all become economic chicken littles, crying and wailing over something that never really existed in the first place.

I want to know where the original dollar went, because the ten grand is gone like smoke in the wind, but the original dollar is somewhere and still worth something.

[HamdenRice]

16. It was real money, and I'll tell you exactly where it went

that is if you are talking about the money from the real estate bubble. It went to people who sold out at the height of the bubble. My former next door neighbor, for example, an elderly lady who had lived in her house since the 1960s and sold around 1997 just before the bubble burst.

Tens of thousands of speculators who watched shows like "Flip This House" took billions of dollars out of the housing market and went on their merry ways.

Some money went to support lifestyles and renovations by owners who did not sell. For example, people who borrowed money from home equity spent that money in the real economy.

Some developers who built new properties and sold before the bubble burst have some of the money.

[leftofthedial]

18. the part of the housing market you describe is a tiny fraction of what I'm talking about,

which is our apparently bankrupt economy.

[JohnWxy]

17. The money went to those who sold homes in the last few years. IF you got out in 2007 you missed the

downdraft. The Wallstreet banks and any of the loan originators who kept the mortgages are now left holding the bag - if they have mortgages that are going into default.

The thing is the housing prices were inflated by overly expansive money policies of the Fed (trying to prop up economy for Cheney admin). NOw with the credit freeze there are virtually no buyers for houses (and autos - anything that usually involves borrowing to buy) so the prices are tanking. Then when the Adjustable Rate MOrtgages adjust (to a higher rate) and people can't make their payments, they go into default leaving the bank with a loan for a property that has a market price below the loan amount. The banks are getting bit in the arse by their own greed.

[leftofthedial]

19. I heard Krugman recently describe our economic problem as

a three or four trillion dollar problem--maybe more. Those who sold homes in the last few years did not take three or four trillion dollars out of our economy and stuff it in some mattress somewhere.

[JohnWxy]

32. Actually, exilsting home sales U.S. for 2007 came to $1,237,788,000,000 according to the

National Association of REaltors. If you add their numbers for 2006, 2007 and 2008 the total comes to $3,648,521,500,000. I haven't got numbers for new homes sales yet but I'm pretty sure that with those numbers you would be well over $4 Billion.:

http://www.geocities.com/jwalkerxy/Existing_Home_Sales.xls


2006........... $1,437,468,200,000
2007........... $1,237,788,000,000
2008.............. $973,265,300,000
total........... $3,648,521,500,000

Of course not all these are going into default but we really should be looking at the sales of homes over say the last 7 to 10 years to get a better base-line to estimate the total default figures. OF course, this is the multi-Billion dollar question - just how much will the defaults come to.? ....still yet to be determined. The number will be affected too by how bad the economy gets in the next year. Obviously, as lay-offs climb this will increase the number of defaults.

NOW, THere is something else: there were additional losses incurred by banks on CDSs written against the default of CDOs NOT OWNED by the purchasers of these CDSs. These would be their gambling losses (just like a bookie) and I don't think the government is going to help them out one dime on these. (at least they better not - this is why we need much more visibility to the bank bailouts which Obama is insisting on.

NOte also that not all CDSs were written against default of home mortgages. They also were written against the default of corporate and municipal bonds. __JW

[EmeraldCityGrl]

20. When this all shakes out there will be a

concentrated few that will have benefitted from the majorities loss. The geopolitical map will be rearranged and will reflect the change in power.

[leftofthedial]

21. I agree.

I think a very small number of people will emerge as more obscenely wealthy than anyone has ever been before relative to the rest of us.

[JohnWxy]

33. welcome to the Republican Dystopia ala Deregulation.

Republican Dystopia - The View from the Edge

foreclosure Phil (Gramm) - the guy who inserted the Commodity Futures Modernization Act (which made trading in Credit Default Swaps legal AND UNREGULATED) in as a rider to the Omnibus Spending Bill 2000

[Mr. Hyde]

24. Saudi Arabia, China, the thin air.

[barb162]

27. The bubble had to burst at some time.

If you had a house worth 300,000 two years ago and you paid 150,000 for it 15 years ago and now it's at 180,000, are you hurt if you never had intent to sell it over this period of time? If you buy another piece of property next week, it went down in value probably by the same percentage so you can get it for far less money than you would have bought it for two years ago. Similarly, if you had a one ounce gold piece, it went up substantially in value the last few years. Things are generally deflating though, except for food prices.

It's strange; as I write this I am watching Oprah and the show is on the middle class homeless in America. There's this family that had a condo and the ARM reset and they lost the condo, then they lost their jobs, etc. They were living paycheck to paycheck but also had a Lincoln Navigator. Three young kids. So there were some really dumbass buying decisions. I can't help but think they wouldn't be in that homeless shelter if they had stayed in a reasonable apt or maybe not overextended themselves and had gotten a fixed rate loan on a more reasonable condo. It's obvious they had no six month or whatever savings, but they had a Lincoln???

There was too much borrowing without underwriting. I think a lot of homes bought in the last few years were sub prime and the people could never have met underwriting guidelines. This drove up the price of real estate to a bubble. The house in the first paragraph never was worth 300,000 without a lot of people buying on ARMs. Housing was artificially inflated. So was just about everything else.

Wealth is not meaningless or abstract as these examples show. It's time for people to get their ducks in a row if they a haven't already.