Topic: How come the bank failure destroy the wealth??? - page 6. (Read 8896 times)

It might be my opinion and I'm different than others' in this forum, but money is wealth. Real Wealth.

Do you consider gold wealth? Well, Gold is just a kind of material with high demand. The same for money. The same for a car. It's just a set of materials linked together, and they work 

Well, so money is real wealth. But like wealth (Gold or Silver), money don't get destroyed or banks don't destroy it. What happened is that banks were investing their money in various mediums like stocks, bonds, loans, investments... When the crisis happened and the value of these investment decreased, banks faced bankruptcy and many banks did go bankrupt.

So if you consider the bank and what it does as a wealth, then yes, it got destroyed by the crisis (that started for whatever reason).

But for this part of your post


All I can say is that people says lot of stupid/non-sense things.

The saving happened when he made the product but didn't consume it himself, not when he sold it.

People need a better way of figuring out what individuals need to lead a fulfilling life, on a global scale, and put that plan into action.  Simply equating happiness (contentment, success, emotional / spiritual fulfillment, whatever you refer to it as -- that common thing that we all as humans seem to strive for, BEYOND food water and shelter) with obtaining raw wealth or power has proven ineffective.  There are good ideas / solutions to the problem that have been around for a while and probably should be revisited and worked with:

-  BF Skinner's Technology of Behavior
-  Thelema
-  Venus Project

I don't subscribe to any of the above outright, but I do recognize them as daring ideas that contain potential for pioneering.  One other such daring idea was the concept of digital crypto-currency, which someone ran with and resulted in the pioneering potential that is Bitcoin.

Another answer besides the more in depth discussions above is that when a bank fails, anyone holding money in that bank is basically screwed out of their money.  Sure the FDIC insures some of it, but if you had $2,000,000 sitting in a bank that went under, you'd be looking at a 95% loss of your savings.  This is not very common though because people with money don't typically do something as irresponsible as put it all in a savings account.  Funny times we're living in.  Putting your money in the bank is a risk while stashing silver under your mattress is smart. 

I never thought about  it that way...

Interesting...

Good question (for once) and even better answer.

People dont realize that bubbles are destructive because resources are used in a bad way and are squandered. In this sense there is no difference on burning resources for nothing, destroying them in a war or using them to produce something people dont need (f.e. excessive housing). But because bubbles produce an increase in GDP some economist argue that the economy is growing, when in reality the increase in GDP is not real economic growth, just the result of economic activity that squanders resources.

People is poorer because part of what was produced was not what people needed. Less useful production = we are poorer.

+1

Also, try to keep the ideas of wealth and capital clear in your mind.  Invested capital can multiply the wealth created through work.  If capital is misinvested, that capital is wasted right away, but it won't be obvious until the dreamed of gains fail to appear.  Bad signals and denial can keep those losses off the books for months, years, or even decades.

What happens is that people realize the lost, which has already been done in the form of wasted resources. These resources were employed in bad investments, which had not enough returns.

Bad investments occur all the time, but when they occur massively like in an boom-and-burst, that's because something interfered with prices, making people take decisions they otherwise would not. (if prices were a correct indicative of supply and demand).

The major cause of such massive bad investments today is cheap credit created through inflation. Central banks create new money and buy debt bonds with it. Buying debt is the equivalent of lending. They increase the supply of money available for lending, without any actual increase in savings (resources, not money). With this cheaper credit, people will make loans they otherwise would not, and investments that wouldn't take place spontaneously now happen. These investments will not have the amount of actual resources they need to complete - remember, only new money was created, that doesn't magically create resources as well. When these investments start to fail, people will "realize" their lost. The actual lost happened when resources were wasted on investments that were not worthy it.

In the example of the $5 million house, if somebody paid that price for it, it means he traded much more resources (the results of his labor) against this house than s/he needed to. That's the lost: you worked much more than you needed for the house. All that work was wasted (lost).


As I explained above, the actual lost did not happen during the crises, it happened before, during the boom, when resources were being wasted on bad investments. The crises is the moment when people realize their mistakes. And the recession is the period in which society as whole reorganizes itself, mainly the capital structure. For example, in this particular real state crisis, too much capital and labor was directed towards real state building. Such capital and labor must be reallocated to activities that better suits society's more urgent needs. This reallocation is never easy: neither capital (means of production) nor people can easily change functions - some times they just can't. So, during this time, there will be poverty, unemployment and so on. And the total production capacity of society will probably be smaller, since lots of capital will be lost, as well as labor.


Hope I've made it clearer instead of even more confusing.

I believe that no wealth has been destroyed, they just destroyed the fiction wealth they created out of nothing

paper money is of less value now that it was before the crisis and if you have savings or investment in paper money then your wealth is decreased.

Well it's like when bitcoins were at 30$ and now they are at 5$, you didn't lose any bitcoins but you are poorer.

As for banks it's also "socialize the losses and privatize the profits"

LOL, AWESOME question.

There is one thing always confused me: People always say that financial crisis destroyed trillions dollar worth of wealth

Based on general economy definition, only consumable goods and services are wealth, money is just a medium of exchange. So, if a house used to worth 5 million now worths 3 million, the actual wealth (the house) do not change, it is just the price of the house changed, and I think this price change are mainly caused by two things: money supply and people's desire

In my opinion, only war or natural disaster can really destroy wealth massively, any kind of financial loss is just a illusion, since people mistakenly think that money is wealth

The real question is: The country as a whole did not lose any wealth in the financial crisis, but why many people are getting poorer and the real tangible and consumable products are getting less produced?