The Adjustment Process
The quote from Volcker in 2005 is instructive:
"Under the placid surface, at least the way I see it, there are really disturbing trends: huge imbalances, disequilibria, risks – call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.I tend to agree with CR that it is better to be at this stage of the crisis if only because we are closer to a resolution, but I can't feel terribly relieved because the ordinary person went into this cycle worse off, with less real wealth and fewer economic options, than in previous recessions.
We are buying a lot of housing at rising prices, but home ownership has become a vehicle for borrowing as much as a source of financial security."
This is why Volcker's statement is so important - that people looked at housing as a source of financial security. It was not just speculation or get-rich-quick schemes (though there were plenty of those, too), but was greatly driven by a desire to make reasonable economic advances while other options, such as solid working class jobs, were disappearing. I read in some blog within the last 24 hours (but can't remember now which one) that a very large number of this kind of employment was lost under Bush.
The crisis will end short of the apocryphal pronouncements I read on many blogs and news sites, but that doesn't mean it will end well for people who are not solidly in at least the upper-middle class.
And, for some, it may not end at all.