It can’t. That’s why socialists tend to stay very quiet about inflation and ignore its effect as a tax on the poor. Vide Venezuela, Yugoslavia, Zimbabwe, etc. etc.

“This is unbelievable,” Mr. Mozilo said in his message. “Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.” …

Guess isn’t so easy to negotiate if you’re an ordinary wage earner a couple of pay checks away from the street, as I f you’re name is Donald Trump. Sort of telling the lads at the bank, 50 cent on the dollar is the best I can offer you and then I’m really stretching it.

“In California, an epicenter of the mortgage crisis, only 1.3 percent of loan modifications struck between January and May this year involved a reduction of principal, according to the state’s Department of Corporations.”

It would be interesting to see figures how house prize/cost relative mean or median real income have developed over a longer time. I have some memory of some graph that the relation had been stable until the 90’s despite business cycles.

Well, I’m not exactly one of your pro-free-market readers, Gene, but the explanation is this: the Fed has to try to balance the need to prevent bankruptcies that are likely to have a catastrophic impact on the financial system as a whole against the need to let banks undergo the consequences of the risks they have taken, as part of the markets’ alleged “self-correcting” mechanisms. In short, some institutions must be punished so as to condition the behaviour of the others, but, if possible, the financial authorities would like this to be done with the least possible impact on American home-owners and consumers.

“James A. Johnson ran Fannie for most of the 1990s and was its main lobbyist. Until June he headed Barack Obama’s vice-presidential search team, but resigned when it was revealed that he got mortgages on unrealistically favorable terms from Angelo Mozilo’s notorious Countrywide Financial. FNMA’s former head, Franklin D. Raines, was President Clinton’s budget chief. He was forced to step down when serious accounting problems were discovered. Other Fannie apparatchiks include Jamie Gorelick, former Clinton deputy attorney general, and Thomas E. Donilon, Clinton chief of staff to the secretary of state.“

Total outstanding home mortgages in the US stood at $1.82 trillion 1987 when Greenspan did become FED boss. 2005 it was $8.821 trillion to day it is $12 trillion?

1987 to 2005 the housing stock increased by 100% while outstanding mortgages increased by more than 400%, cpi did rise 72%. There seems to have been some asset inflation or as mr Greenspan characterised it “wealth creation”.

There is Medicaid for the out of work. Social Security and Medicare for the retired.

In the 30s, the Federal WPA built great public works projects. Bridges and dams that are now crumbling. If the worst happens there is much work to do.

“Brother, Can You Spare a Dime?” by Harburg Gorney (1931)

“They used to tell me I was building a dream,
and so I followed the mob,
When there was earth to plow or guns to bear,
I was always there right on the job.
They used to tell me I was building a dream,
with peace and glory ahead,
Why should I be standing in line, just waiting for bread?

Once I built a railroad, I made it run,
made it race against time.
Once I built a railroad; now its done.
Brother, can you spare a dime?”

For the entire song, go to http://www.library.csi.cuny.edu/dept/history/lavender/cherries.html

One thing this crunch should do is expose the hollowness of John (I voted with Geroge Bush 95% of the time) McCain’s claims to be a candidate of change.