No, the capital of the financial system is not an accounting fiction. Actually, the mark to market losses the present rules are forcing the banks to pretend to take are closer to matching that statement, being easily half to three quarters pure accounting fiction, based on the idiotic idea that everyone is always forced to sell to the lowest bidder.
As for the payouts that will never happen, there are indeed real credit losses on subprimes, but then those were written to approximately zero about five exits back. The populist liquidators have just kept on singing the same slander song ever since, but not a lick of it is true. I recall they also told us that 0.5% drops in asset prices would render everyone bankrupt because there were so many derivatives. We are at 50% and counting and most of the world stands. How do you suppose that is?
As for the smear at bankers and their bonuses, again the populist know-nothings attempt to repeal natural laws as unfair to their pie carving sense of the world. Incomes follow a Pareto distribution. That's a power law. 80 20 rules and all that. Those distributions were discovered in statistics in the course of studying income distributions.
We also know why, at least approximately, and the answer isn't self dealing or greed or any of the usual populist suspects. Just as anything governed by multiple independent trials with bounded mean will approximate a normal, if instead a normally distributed skill influences a success probability, anything that follows the accumulation of those successes will show a Pareto distribution.
But the primary fallacy lies deeper. Financiers produce huge positive externalities for everyone else. They don't consume a quarter of the value they actually add. Only research scientists (and although it is less well measured, law abiding soldiers) exceed them in that regard. Finance has paid vastly more to the treasury than it ever will receive from it, directly or indirectly.
Does anyone ever notice that deadbeats robbed bankers of $1 trillion? That every dime of that was real money and unearned income to the deadbeats, or those they bought things from at fancy prices? (Takers took).
But who cares about any of that? Everyone made something in the bubble, directly or indirectly. Workers did, borrowers did, lenders did, financier did, the government did, foreigners did, you name it. And the loss from misallocated capital was big enough that everyone was going to and is taking the hit for it. It is just kindergarten foolishness when anyone thinks they can escape it by passing it off on somebody else. There is no somebody else, certainly not big enough. Any hit this big hits everyone, no matter how you allocated the initial losses.
But if you don't, and fight over it forever, you can have losses 10 or 20 times as large, as well. So far the losses that have nothing to do with actual bad loans exceed those that do have something to do with actual bad loans by a factor of about 15, easy. Maybe when all is said and done the loan losses will be higher and drop that to 8 - more likely to 10, as the wider losses aren't over. Or maybe they won't. But you can be sure of this - the actual gain to deadbeats and immediate hit to bankers will be utterly dwarfed by the losses to everyone from pure pigheaded stupidity and refusal to face and allocate the loss.
Which sane men have been pointing out for a solid year now.
Now to what is worthless. The total future cash flows to all financiers in payment on debts are not worthless. Every time banking capital is impaired, the rates everyone pays for capital go up. Law of nature again. This occurs as wider spreads and higher real rates from falling prices, as well as straight nominal rate increases, but is always happens. The reason is simple, objectively higher risks will simply not be borne by anyone unless they earn more not less in the way of returns. Enough to cover all the likely losses and to spare.
The less you pay bills on time, the more you stiff bankers, the more you insist in high dudgeon that they be destroyed because their borrowers are deadbeats, the more all future borrowers get to pay to have any access to capital. And if you don't, then there isn't any capital and you don't get any access to it. And car sales fall 50% year over year. And federal spending explodes 33% a year, while revenues fall.
You can't make any of it better by reducing the payments to capitalists, because insufficient real payments to capitalists are the underlying cause of the problem in the first place. The real payments to capitalists, divided by some interest rate, *is* the value of capital the entire society will have access to. It has no other existence. And the more erratic and grudging the payments, the more it it pulling teeth to get someone to fork it over, the higher than divisor interest rate and the lower that capital value.
The only way to have capital, is to pay for it richly, on time, without a murmur, in industrial quantities.
Refuse, and there simply isn't any. Law of nature.
You spill a lot of pixels addressing hopeless ignorance.