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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: The Vet who wrote (87898)	9/1/2007 9:44:20 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 306849

As I see it, the original $500K that went to the builders et al and any principle and interest you may have paid is still out there in circulation regardless of whether you default or not. So what money has been destroyed? Good point.. I would suppose it's the money that the banks now have to declare as a loss on their books. They loaned out $500K, foreclosed, and now are left with a house they have to resell in order to recoup their loan. So if they sell the house for less than the loan amount (forget the interest payments over 30 years because that's an "opportunity cost"), then it's monetary destruction because someone's liable for that loss. And the loss would normally be taken out of profits since most banks already factor in an expectation of some of the loans going bad. I usually use this money creation example with Bonds.. It's a much cleaner example.. Hawk