Most of it evaporates, given that most of it never existed in the first place except as a transient, overstated fiction.
Most of what people thought was "wealth", was little more than future expectations, and not real value, since value is forever transient. Once the lending music stops, everyone scrambles and dashes for a chair (that has been long since removed). But the bankers' expectation does not change. When nobody is buying, prices fall, and existing debts end up being for nothing more than goods and services now of little, or questionable, value. When everything crashes, most people with debts end up on the hook for debts, the amounts of which don't change at all, even though the true market value for whatever they financed dropped.
In the long run, the banks (and the Fed, and the governments that bail banks out) end up with title to most of the actual substantial wealth, regardless of its fleeting, formerly distorted value. They'll keep a lot of this completely and deliberately off the market, of course, because when things pick up, it's, "Hey, want to finance one of our repossessions, cheap cheap?"
