Hi CB, <<Ms. B lost money on the deal, but do we say her $200 paper value was destroyed? Objectively speaking, her money didn't go to money heaven, she paid $100 to Mr. A, and the $200 never existed.>>
Unless Ms B got a home equity loan based on her home equity and NAV health, and used the proceeds to buy ABC stock and an imported Japanese SUV, and ABC went down immediately after purchase, the Japanese spend the margin on gold covered chocolate ... etc, yes, in some sense, to the world as a whole, value was not lost, but taking individuals as discrete entities, and assign different propensity to spend to each, aggregate these discrete entities to clearly identifiable economic sub-systems, value was lost.
Ms B, with the propensity to buy SUV once every so many years, buys no more, and may now lose her home to the bank, and take Maurice's advice and work until 95.
In the aggregate, the bank may not collect enough on its portfolio of mortgages given the general level of equity embedded in homes, ... stiffing the mortgage backed security holder, thus raising interest rate generally, adding to the friction of commerce ...
Well, it is a story, any way.
Chugs, Jay |
