Money and banking question?

Ok....so we've been having a large Banking crises lately, but a question keeps bothering me. Where has the money gone? It couldn't have disapeared into thin air....could it?

• Answer:

  It's not that cash has just disappeared it is that mortgage accounts have declined in value. One of the ways banks meet there need for cash flow is to bundle and sell existing mortgage accounts to other usually larger banks. These are valued based on the risk of default. A bank may for example pay 97% of the face value of a mortgage bundle and hope they can collect 98% and turn a profit. In many cases the true risk was down played due exaggerated home prices and risky loans. These mortgages were over valued and are now worth significantly less than what was paid for them. The banks who purchased them are stuck with uncollectable debt and a loan protfolio that is worth much less than the cash they invested.