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Uhhh that's not what the sub-prime mortgage crisis was. What you're describing was extremely risky mortgages being rubber-stamped to borrowers who shouldn't have received them, then bundled into Mortgage Backed Securities (basically a type of bond backed by, say, 500 mortgages containing a variety of risk profiles designed to balance out into a low risk but decent yield investment) and the fraud was that too many of these high risk mortgages were bundled into these securities and the risk level was misrepresented to investors, so when people defaulted on their mortgages in large numbers this caused the MBSes to rapidly devalue (which given they were treated as a way to protect capital against instability this greatly damaged many funds such as retirements and bank investments, 2 things that are heavily regulated to make safe investments because the risk is too high should they fail)
Or just go read the Wikipedia page for far more detail: https://en.wikipedia.org/wiki/Subprime_mortgage_crisis
Thanks, I've read it. None of what you said is wrong and none of it refuted what I said about it all either. They're not mutually exclusive.
Plenty weren't simply "risky loans." That's corporate speak. Technically true in all instances but not incriminating. After all, what loan could be riskier than one made to someone who doesn't exist etc.?
https://publicintegrity.org/inequality-poverty-opportunity/at-top-subprime-mortgage-lender-policies-were-invitation-to-fraud/
https://www.theguardian.com/news/2022/feb/21/tax-timeline-credit-suisse-scandals
But the important part is that you're not cross referencing that with how money is actually created and destroyed these days or, it would seem, or acknowledging the level of fraud involved on the issuing of the mortgages, bundled up into those MBSs.
https://www.bankofengland.co.uk/explainers/how-is-money-created
The BoE is the UK fed and its not going to be different in America. Both countries have the same monetary policy.
Money is created - human labour - money goes back and is destroyed.
Back to the banks, they created money when they issued those mortgages. They wouldn't me mortgages otherwise. As a bank, in a system of fractional reserve banking, they're as good as money. Those mortgages didn't get parked on some balance sheet in the sky. Not trying to be patronising but to really crystallise it.
When the people couldn't pay it off with either their own work or someone else's, either through being dead or just not being able to pay, the money already created, already in the system, vanished. Just like if it turned out the bank of England had no gold at all, back in the gold standard days.