Professor Elam

Now banks are failing to foreclose on homes, the cost of demolition is more than the value of the house.

This NY Times article is getting a lot of buzz on CNBC this morning.  This is true deflation.The value of the collateral goes not just to zero, it goes negative. The cost of demolition makes the property have a negative value. Rather than face that cost, the bank refuses to foreclose and the homeowner is faced with that cost.

Note however that the value of the debt remains on someone's books. The mountain of debt remains, the asset values evaporate.