I see the housing crisis in the same vein as the Iraqi war. The current mortgage lending practices have provided the lenders a cash cow just like the Iraqi war is a cash cow to the Military corporations.

Since the banks have authority to lend money to people and have the government pay it back, they will lend as much money to as many people that they can. It matters little to the bank wether or not the person will be able to pay the loan because the government(taxpayers) will guarentee the loan.

It is much in the interest of the lenders to prolong this situation for as long as possible. Thus people like you are poo pooing the idea of a crisis.

The housing crisis is only a "crisis" to those who are liquidating their properties. To people like me - a 30-something with a young family - this is no crisis at all. This is a huge opportunity for us to get into a house in a good neighborhood. Crisis? Not to the majority of the population; but perhaps to the government who collects property taxes, to the destructive house flippers, and to older folks who have lived in their homes for more than 10 years.

"Since the banks have authority to lend money to people and have the government pay it back..."

Not hardly. I assume you're talking about FDIC deposit insurance. Of course, before the FDIC steps in to compensate depositors of a bank, the bank must have gone bust.

Now, I do agree that "it is in the interest of the lenders to prolong the crisis as long as possible." I am convinced that several national banks are already insolvent. They are writing down losses at the bare minimum they think they can get away with, hoping against hope that the housing market will turn around in time to keep them from being wiped out completely.

It's not going to happen. A significant number of national banks (think BofA, Wells Fargo, WaMu -- that type) are not going to be around as independent entities when all this is over.

Look at financial companies' stock prices, for Pete's sake. You could have made a boatload shorting their stock down from $70 to $5. Trust me -- companies don't like that kind of stock profile.

That said, the underlying economy is relatively sound, especially when compared to the late Carter years.

Thomas. Check out the groups called HUD, Fanny May and Freddi Mac. Check the scam known as Reverse Mortgage. See how many Trillions have be taken from the government/taxpayer in the last several years.

It is not a crisis when house prices fluctuate. It's a normal part of the economy. It is only a crisis if prices don't recover from a downturn... and they will. It might take awhile.

Much of today's home buying is for investment. And investments always fluctuate.

The folks who walk away from their homes because the market value is below what they owe, are crazy. The values will come back. In the mean time they will lose their good credit rating for years to come. I hope they learn a lesson.

As for the US House bill to bail people and mortgage companies out... I think Bush has threatened a veto. And I hope he will. We don't need to use tax money to reward stupidity.

Thomas, I respect your understanding of the economy more than just about anyone on these comment boards. But I don't understand how you can say that "the underlying economy is relatively sound." I can only guess you get your economic bearings from the Chicago school, which is really based on monetarist principles, am I right? So you're viewing things in a quasi-Keynesian sort of way?

Earl, the only real problem with the economy is the credit bubble: Too many people lent and borrowed money to buy assets bid up to insane prices. The credit bubble is in the process of correcting. Since the bubble was so extraordinary, the correction is turning out to be pretty spectacular, blowing up billions of dollars of (paper) wealth.

That's going to hurt, especially for people who listened to their idiot Realtors and bought at unsustainable prices, as well as the real estate industry people who depend on them.

But in a large sense, the wealth that's being erased was never real. So we're going to be knocked back to where we would have been had we not gotten addicted to living beyond our means -- which frankly isn't all that bad a standard of living.

Unemployment is still around 5%, typically the measure of full employment. Inflation has been a little perky, but it's still under an annualized 5% rate. Remember the "misery index" -- the combination of the unemployment and inflation rates? It was over 20 in the late Carter administration. We're nowhere near that.

We've just gotten used to thinking an unsustainable boom is the norm.

Ultra Bob -- I'm familiar with the programs you cite. What "trillions taken from the government" are you talking about?

HUD/FHA has yet to pay out a dime net of mortgage premiums on government-insured FHA loans (although that will probably change soon). FNM and FRE are privately owned by investors; although it's widely believed the government would bail them out rather than let them fail, there is no express government guarantee, and again, the government has never paid a dime to support them.

A reverse mortgage can be a useful retirement-planning tool. Not sure what you're referring to here.

Earl -- I view the credit crisis more from the perspective of the Austrian school, as a malinvestment liquidation event. Painful, but necessary.

Thomas, I concur with the malinvestment problem. I'm also a believer in the Austrian school, but I guess I don't see things quite as positive as you do. I think we're in for a very big correction which the Fed will probably make worse by trying to save us from it. I hope you're right and I'm wrong.

great column and fairly readable (for a dummy like me) for a George Will column. The translation is that prices always fluctuate and whatever perceived "problem" there may be is only exacerbated by Government meddling. I'll buy that. And indeed, there is always a shortage of quality major league pitching.
@ thomas: if you think inflation is truly under 5% you may want to consider that food and fuel are factored out because they are so "volatile" They are volatile but it seems that they are volatile in one direction- up! I would say at this point, when oil prices have doubled in a year we may want to start factoring in fuel prices in the inflation estimation.