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Where Did Your Lost Money Go

Where did all the wealth go when home prices were so high? It wasn't really real.

The loss of money causes the economy to slow, that’s obvious, but the money was never really there in the first place in some cases, or if it was, it was only there for a very short period of time.

Whether you’re talking about stocks or homes prices, the price is all in the eye of the beholder and the loss is just a very tough loss to bear.

Robert Shiller, an economist at Yale University, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it's simply the "best guess" of what the stock is worth.

"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."

Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000. "In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."

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