Market Meltdown

Like most citizens of the world who have the luxury to contemplate their country's economy, I've been wondering where all of the money went. I feel that I have at least a basic understanding of who is losing money and why. I understand why the mortgage market is broken. I understand why the banks are not lending. I understand why Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson's bailout plan is not working (and why it can't work). What I don't understand is where all of this money that has been lost has gone.
Or do I?
At every step of the loan process, someone was taking a cut. In most cases the money was quickly turned into bonuses for employees and management at the mortgage companies, investment banks and even the regular banks. Dividends were paid out to shareholders and invstors holding premium stock. But can trillions really been paid out? Probably not, but certainly several hundred billion dollars were.
So where is the rest?
I started thinking about a question that may be as important as where the money went, where did the money come from? The answer to this question might shed some light on the first question.
A lot of the money, hundreds of billions to trillions of dollars, was float between companies and individuals as credit. That's right, they just made it up. There wasn't any money being exchanged, there were only promises of money in the future.
The Federal Reserve system has put hundreds of billions of dollars into this part of the economy, this is also money that was just created out of thin air, though in some case government bonds were sold.
The third place that was funding the bubble (sub-prime, housing, stock market) was market speculation. Didn't you ever wonder how a barrel of oil that can be turned into a set number of gallons of gas lets say, that will function to move automobiles roughly the same amount of miles, can be worth $70 one day, eight months later $150 and six months after that $40? The same amount of gas comes from the oil. Cars using the gas can drive roughly the same amount of miles. The price fluctuation is all speculation. While this doesn't necessarily create money out of thin air, it does provide great motivation for the first two reasons I give to do it.
Now market speculation is not reserved to the oil industry, but occurs in every industry, with every agricultural crop and in most service oriented areas of the economy.
Who was it deciding that your house should double in value every ten years? That would be the speculators.

So, the money went to the fat cats and the businesses they run to be distributed to shareholders of premium stock certificates that were eligible for dividends. But, most of the money that has "been lost" was never there in the first place.
If people knew this, they might be more likely to stop panicking, so why wouldn't the Federal Reserve or any other part of the government, or any of the businesses involved tell them this? It would help the market settle out now, wouldn't it? Probably not. I think it would lead to a (greater) distrust of the above mentioned entities and individuals associated with them. It might even lead to people losing their jobs and companies going out of business, maybe even to reforms to keep this from happening again in the future.
Well, we can't have that, now can we?