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Thread: Paper economy

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    Default Paper economy

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    The Federal Reserve is estimating that in Q1 2008, households (and nonprofit organizations) lost over $300 billion in net worth associated to real estate.

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    Default Re: Paper economy

    ^^^ and the banks have also lost over $300 billion in capital associated with writing off mortgages and related paper.

    An important distinction here is that households weren't actually the ones to lose real money. Well, that's not true in the case of a homeowner who actually owned their house free and clear - but in the majority of cases it was a bank or Freddie / Fannie who ultimately was the owner and who ultimately takes the loss.

    However your point is valid about a 'paper economy' ... where valuation stems from someone's appraisal of what a piece of paper with green ink on it - or a house - or a secondary mortgage bond - MIGHT be worth. Without some sort of enforceable yardstick, today's valuation can be anything that the appraisers SAY it is, and tomorrow's valuation can be vastly different (in either direction).

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