House price boom and bust : Where all those money go?

Don Harrold just produce another conspirative video here you are a embeded link :

http://nmmmnu.blogspot.com/2008/07/don-harrold-video.html

His idea is that the money from housing crunch are in the system. That is very interesting oppinion. I thought similar think before.

However, is it possible the money NOT to be in the system - the money can be created in thin air, but they can be destroyed in thin air as well.

Peter Schiff before said that the money went to the builders and "early investors". However, most of them (especially investors) had loans. So, small calculation:

---

House price boom:

1. Mr. Joe get 100K loan (no interest and no money down for simplicity). -
   1. Where money comes from? Fractional banking reserve or from FED Discount window. We assume the bank do not package the loan.
2. Mr. Joe buys house from builder.
   1. Builder has the money, but he probably has debt, also house cost some materials. Let say after cover everything, the builder make 30K profit. Builder also use the money to build new houses (unless house value drops)
3. Mr. Joe gets lucky. His house let say double and now costs 200K. He sells it to someone else.
   1. Mr. Joe receives 200K, cover the loan etc and he have let say 90K profit.
      1. Because the bank created or borrowed the money for Mr. Joe, they need to cover too. Bank makes just the interest, money down fees - thats not too much money, no more than 10K. In all cases money gets destroyed.
4. New owner have loan similar to Mr. Joe and the story is repeating (unless house value drops)

In case of loan packaging situation is not much different. In such case the bank is transparent and most of profit is collected from the "SIV investors".

---

Once house price collapse:

1. Mr. Joe is OK. He have no house.
2. Builder may be:
   1. Builder may be takes loss, because he invested the money into new houses that can not be sold for full value, and can not cover the expences.
   2. Builder may take no loss, if he did not began building yet.
3. Current house owner have 2 options -
   1. to pay his loan, which is much bigger than the house.
      1. In such case bank takes no loss.
   2. not to pay the loan. In such case owner is OK, he lived some time for small rent or for free.
      1. Bank takes loss, because the house does not cover the loan.

In case of loan packaging situation is not much different. In such case the bank is transparent and full loss is collected from the "SIV investors".

---

So in this example, the everyone makes not much money compared to the price of the home. May be Mr.Joe make most money compared to invested money - he invested almost 0, but let say 10-20K and gets 90K . This is because the leverage works for him.

So, the conclusion is money are in early investors. This is where all the money go.

Am I correct?

---

Note I also assume Mr. Joe did not bought new Lexus + Plasma TV with surround sound + Jacuzzi system for bath.

If he did that, then this mean he did not sold the house, and he used the house as ATM - this means new loan, new fractional reserve money (or Discount window money). If Mr. Joe is non-responsible, this means he exchange the real money he made (90K) for "virtual" money that soon will be destroyed (when house price collapse).