Phantom Wealth

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Phantom wealth, or illusory wealth, is wealth that appears or disappears as if by magic. The term generally denotes money created by accounting entries or the inflation of asset bubbles unrelated to the creation of real wealth. The high-tech-stock bubble and the housing bubble are examples.

Phantom wealth also includes financial assets created by debt pyramids in which financial institutions engage in complex trading and lending schemes based on fictitious or overvalued assets in order to generate phantom profits and justify outsized management fees. Debt pyramids may be used as a device to feed financial bubbles, as in the subprime mortgage scam.

As during the boom and bust phantom wealth housing bubble that began to collapse in 2007 and led to economic crisis in 2008, those engaged in creating phantom wealth collect handsome performance fees for their services during the phantom wealth boom and then walk away with their gains when their schemes inevitably collapse.

Those who had no part in creating or profiting from the phantom wealth scams are then left to absorb the losses and to sort out the phantom-wealth claims still held by the perpetrators against the marketable real wealth of the larger society. It is all legal, which makes phantom wealth creation a perfect crime.

Phantom wealth vs real wealth

The acceptance and success of most phantom wealth financial scams rests on the illusion that money is wealth and those who create money are engaging in creating real wealth. In fact money is nothing but a number, an accounting chit created out of nothing when a bank issues a loan. It has no reality outside the human mind and has value only because we agree to accept it in return for things of real value.

According to Kurt Richebacher, the ridiculous idea that financial bubbles create real wealth was given undeserved intellectual respectability by a 1996 article titled Securities: The New Wealth Machine published in the respected Foreign Policy journal [1]. Thornton Parker warned in 2001 that the retirement portfolios of baby boomers are comprised largely of phantom wealth assets likely to disappear when they begin withdrawing funds to meet retirement needs [2].

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Author: David Korten