Why?
Paper profits are just that - paper.
The economy - the real one - will be much healthier when those houses are down to $200K again.
Boy do you not understand how things have been working in California. People have been taking their paper profits to invest in other property, cascading debt. Furthermore, lots of folks take out equity and spend it to live on. So it is not paper profits that are dwindling, but real debt secured by real estate of diminishing value that is growing by the mountains.
And lest you spurn paper, it was all done with paper money.