Where has all the money gone?

The CEO of the Blackstone Group, Stephen Schwarzman, has claimed that over the last eighteen months 40-45% of the wealth in the world has been lost.

Lost? How can people lose trillions of dollars? Did they check behind the sofa or in their spare pants? Did some super-villain break into Fort Knox and teleport all the gold away? Perhaps they put it in a Swiss bank vault and lost the key and now can't get it back.

No, the reality is that most of the money lost never really existed -- it was all in our heads, and by "our" I actually mean mostly the jokers on Wall Street and bankers and crooks like Bernie Madoff. These guys fooled themselves that they were producing value when all they were doing was shuffling electrons in computers: a shell game, a confidence trick, where so long as everybody stays confident we don't notice the trick. Money is, when you get right down to it, a shared illusion, and often based on some really weird ideas too. Gold, too soft to make into either swords or plowshares, is considered valuable, while good clean air, without which we sicken and die in as little as minutes, is valueless.

Another example of the illusion of money is the diamond trade. Diamonds never wear out, they don't rot or break down. Almost without exception, virtually every gem-quality diamond every found still exists. Every year, the total pool of diamonds available in the market continues to increase. In truth, diamonds are not really that rare, and getting less rare every year. By the accepted laws of economics (to say nothing of common sense), diamonds should depreciate in value. But they don't. Under the cunning marketing of De Beers, diamonds are massively over-valued relative to the number of diamonds potentially available. De Beers' genius was to convince people for the last half century to buy diamonds, but not sell them. And now, with a Depression looming, they fear that this massive stockpile of diamonds may suddenly re-enter the market, flooding the market for diamonds and causing the price to crash drastically.

This is what happens when you value something under the assumption that it is far rarer and more precious than it really is. Sound familiar? Tulip mania, the South Seas bubble, the dot-com boom, the various housing bubbles, Worldcom, Enron... the list goes on and on.

By the way... what's wrong with Forbes? How can a magazine with their reputation write something as ridiculously stupid as this?

In 1920, Charles Ponzi, an Italian immigrant, began advertising that he could make a 50% return for investors in only 45 days. Incredibly, Ponzi began taking in money from all over New England and New Jersey. By July of 1920, he was making millions as people mortgaged their homes and invested their life savings. As with all frauds, he was discovered to have a jail record and was indicted on 86 counts of fraud. Some tens of millions of dollars were invested with him.

(Emphasis added.)

All frauds have a jail record? How can they make this claim in an article about a fraud with no previous jail record?

(I was also interested to see that Wikipedia seems to suggest that all financial futures are martingales. If this is the case, and I haven't misunderstood something, then futures are mathematically guaranteed to lose money in the long term.)