If you spend all your time building something no one wants, the world overall is poorer than if you build something amazing and people pay high prices for it.
Right -- all that money goes to pay people's salaries and materials, but the opportunity cost of building something useful is what is lost. That's the answer to the broken window fallacy, Keynesian ditch-filling (at least as a long-term solution; it is possible it makes sense to smooth out demand, but real public works projects are still better even then), etc.
So malinvestment is a good point but money does not disappear. For malinvestment to happen someone has to make good investment... Therefore the money does not disappear it goes to the person with better investments... Let me put it this way money transfers ( what i meant by it hides in someones pocket)
Coming back to your house... When you commissioned the house you paid for materials, salaries etc... therefore transfer of money.... Next when u bought the land u invested in a certain property for a certain value, the value was destroyed (due to whatever reason tsunami etc) so you lost money but the person who sold it to you gained (aka transfer of money)
Now if you talk about which building is worth building thats a whole new debate... Sorry I didn't explain it before... I was just talking about how banks usually have pretty good ways to make money... They invest in competitors cause no matter who wins... They get the interest...
To play this game both borrowed money, so both parties paid interests... So i guess the banks made money... Fits in with this article http://money.cnn.com/2009/04/13/news/goldman.earnings.report...