Thanks in large part to the handful of ET posters who are actually knowledgeable and helpful, I think I understand money creation through lending, but I do not understand how wealth disappears. It's pretty obvious how a decline in an asset's value affects the owner of that asset during the decline in price, and particularly how banks can be quickly rendered insolvent by defaults or foreclosure of severely devalued assets, since they are conjuring most of the money they lend out of thin air (in other words, if they don't get most of it back, they're screwed). However, the money from the loan went to purchase something, no matter how dubious its valuation at the time of the transaction. Even though the buyer (and ultimately the lender, if it comes to that) realizes a loss, the seller received the money and presumably retains it, or passes it to someone else in another transaction. In any case, it seems there should be some kind of law of conservation of "money". Now, it also seems obvious that there is a distinction between "wealth" (or "value") and "money", and I can see how inflation could wipe out wealth while preserving the amount of money. But if we are experiencing deflation at the moment, not inflation, why do people constantly mention the $11 trillion (or 16 or whatever) of wealth that has evaporated? All that money that people spent on ill-fated CDOs or CDSs, or McMansions in Stockton for that matter, where did it "go"? If there are so many losers, why aren't there an equal number of winners so that spending remains the same. It is self-evident that spending is decreasing, but I would like to understand how and why. Thanks!