Where has all the money gone? A question I can't answer.

I was having dinner with our accountant last night and after we'd conducted our business, my long-travelling biz partner succumbed to jet-lag and fell asleep at the table. So the accountant and me started the inevitable conversation about the recession. (His biz, not surprisingly, also fits my developing theme of businesses doing OK in the current climate by the way.) We covered the usual bases and then he asked the question I haven't yet been able to answer. Where has the money gone?

I started down the usual route of 'toxic assets' and 'value that never was' and 'securitisation' when he stopped me (to be fare, as a chartered accountant he knows more about this stuff than I ever will and I was probably being patronising) and asked again, where has the money gone? His point was that someone sold said sub-prime house to sub-prime borrower who defaulted, but the money from the original sale didn't disappear. As he developed the theme, I started to see his point. Every share, bond or house that has depreciated in value was bought and that purchase money didn't disappear from the system. It may have changed hands a great deal and many people will have lost and gained but, like energy, it hasn't actually disappeared. Has it? Having worked in banking (never as a banker I hasten to add) and being a bit of a know all, I find it disturbing not to have some sort of an answer.

I recall from various bits of FS training the expression 'slushing round the system' used to depict the phenomenon of money that changes hands but never leaves and which fits with my mate's point. And despite the 'end of the world as we know it' views coming at us like machine gun fire, there must be certain unalterable factors at work in any system and maybe this is one. I'm sure Robert Peston or Will Hutton will have an answer but I'm struck that, in all the acres of coverage, I haven't heard it yet.