Read Robert Kuttner's Squandering of America. The book spells out in start and uncompromising detail of how risk was shifted to the individual over the last 40 years.

Confronting this challenge is one of those things resting squarely on the shoulders of a President Obama. He'll need to use the Bully Pulpit to put the New Deal controls back in place with a modern updating as well as set up new ones to make the financial markets a little less vulnerable to future manipulation.

Even then, they will always try to game the system, even if it takes decades to accomplish their goals. We just have a chance to get one of our own in there for a while and reset the clock a bit.

Great blog.

One thing I think would be effective is a $10,000 tax credit for anyone who buys a new primary residence in any given year. Assuming that people who are selling are buying something else, the credit might offset the pain of a short sale. You can use it once every three years. That would cost about $55 billion. But it would encourage people to move, and in doing so stabilize the housing industry. I beleive as housing goes, so does the rest of the economy.

There are new laws that help stimulate first-time buyers this year (HR3221 in case anyone cares) by giving them a $7500 interest free loan int he form of a tax credit, but that expires July 31, and honestly, I haven't seen a lot of traction from it. I'd like to give the people who want/need/can move up into a new home a good reason to do so.

"Also, no one was ever forced into a mortgage. They may have been tricked, but not forced."

Either way, they're in a mortgage they can't afford. So far, it's cost us billions of dollars, several of our biggest corporations and a few hundred points on the American stock market. And the world markets are suffering as well. All because there's no reason NOT to tell consumers the truth when they apply for a mortgage.

Thanks HR - I've been asking that question myself - it's the trickle down bailout philosophy that the Fed is implementing.

As a former community bank executive, there are a few things here worth pointing out, but the theme here is dominoes. In a nutshell, money moved from stocks to mortgages after 1999, rates fell after 9/11, and a full housing boom was underway. The Bush admin and congress removed regulatory barriers directly or indirectly, and lenders themselves borrowed more money to do more deals. Lenders took on more and more risk - lending to borrowers in the sub-prime category. On paper, many of these borrowers either barely met or were just beneath their lender's policies, but the deals were done anyway. And those borrowers had no financial ability to miss a single paycheck.

So when the worm turned, this whole chain of dominoes fell, starting with the sub-prime borrowers, and then leading to the largest lenders in the land. Crash!

Keep in mind that the majority of borrowers out there can still afford their mortgages. But what hurts everyone, and I do mean everyone, is the drop in home values. Because of the number of foreclosures and glut of homes built, home prices are falling very quickly. Even more stable or conservative areas are seeing a 5-10% drop. The bottom line is millions of people effectively can't sell their homes or they'll take a loss. That means they can't move to take on a new job. And with gas prices rising...

Normally, the American consumer has spent us out of recessions. But now, what do you think will happen with consumer spending?

Bluebell is right on. The "new deal" regulatory caps as well as increased domestic government spending increases (health care, infrastructure, energy) can help the economy. Which candidate is proposing this? I think the other one left us on our own.

Thanks bunnycat. Sometimes I feel like I'm the only one on this board that sees this situation from a marginal homeowners POV. It's nice to have a bit of back up.

What I want to know is, why aren't some of these jerks in jail yet?

Usary and bending the rules are obvious. Why aren't these petty common thieves in jail? That's where they belong. Orange jumpsuits and cellmates named Bubba.

Don't you realize this is the Democrats fault for forcing the banks and mortgage brokers out to lend money to people who can't afford the loans (i.e. minorities)?

At least, that's what the local right-wing radio nut job tells me, as well as the local sports radio talk show hosts who feel compelled to share their political opinions (while simultaneously bitching and moaning if some Hollywood celebrity ever remarks about politics).

Of course, the Fair Housing Act has only been around for 40 years, and we're only just now bailing out Freddie, Fannie and AIG. That's some delayed reaction.

But hey, $85 billion for AIG is a bargain. According to this site, the we've spent $555 billion on the Iraq war to date. So AIG is just 0.153 Iraq Wars.

I agree that instead of bailing out the charlatans and criminals who have bilked regular people to the tune of billions we should instead make mortgage rates more affordable for the average people of the country. After all, they (we) are the ones bearing all the risk and paying for it all. It's just a damn shame Obama doesn't seem to think Democratic solutons are particularly helpful. He never condemns the crooks who got us in this mess and doesn't suggest supporting any solutions that would provide relief to the average American. I'm not sure he actually understands what has happened out here in the real world. And in fairness to him, I'm not sure there are many Democrats in Congress who understand the catastrophe that has and is taking place right now.

Stepping back from the current Presidential race, the issues raised by the economic crisis were well-articulated a couple of months ago in Bill Moyer's interview with Andrew Bacevich:

http://www.pbs.org/moyers/journal/08152008/profile.html

My take on Bacevich's thinking is that the real "third rail" of American politics is something that can't even be discussed by a major party politician: the "American Way of Life" is slipping away, and efforts to hang onto it drives foreign policy, military policy, environmental policy (or lack thereof) and many other aspects of US and global politics at the dawn of the 21st Century.

How Much Would It Have Cost To Bail Out Consumers Instead?

That question is priceles. Excluding the the capital necessary for a bail out of our neighbors, who got caught up with the frenzy for financial gain.

Many were afraid of being left behind in the race for financial security, many of our friends were relying on their ability to cash out in the later years by downsizing.

Out of fear that our government was bankrupting the Social compact of Social Security.

Think of the costs to the cities now dealing with blight, or the costs now being redistributed by homeowners who have seen their values depreciated.

There should be a higher cost placed upon the party whose ideolgy, has given us the Hoover depression, and now has perpetrated another attempt to purchase our American dream (Home ownership) at ten cents on the dollar.

Eventually someone will own the assets, the question is how cheap can they get it for.

While this Congress was passing laws making it TOUGHER for Americans to declare bankruptcy, they completely ignored the warning signs in the financial meltdown. Now the gov't is using tax payer dollars to bail out and prevent these companies from going bankrupt.

They punish the American worker by making bankruptcy more punitive, yet enable these financial institutions to continue with their risky behavior by offering a bail out.

WHAT IS WRONG WITH THIS PICTURE?

Obama '08