I’m foggy on all this myself, but I think the basic problem is fake “wealth” evaporating, not real wealth simply transferring.
Like you and everyone else think your house is valued at $500k. You may borrow against that amount. You are taxed on that amount. You may plan to sell it and retire off the proceeds.
But then you find out no one is willing to pay more than $200k for it. Essentially that $300k never existed, but you made assumptions that depended on it.
Right. The banks and governments make is seem that if the markets collapse all the houses will collapse on their occupants.
But what’s really going on is you lose purchasing and bartering power if your asset loses its perceived value. If that happens uniformly, then whoever is getting the upper hand on the appraisals gets the wealth transfer, right?
Yes. Same thing with stocks.
Stocks also fuel the IRAs and 401Ks.
And we have had a "booming" stock market based on......? What exactly? I say part of that "boom" was QE1, QE2, QE3, and ZIRP. But the real economy was in Depression. Real unemployment was over 20%.
Very importantly, a mortgage lender may have made assumptions that depended on it, too -- like extending a $400k mortgage on a property that had an appraised value of $500k but an actual value of only $200k.
In this case, it's the lender that has the strongest incentive to prop up the value of the asset, not the borrower.