This is an excellent primer on Housing Busts and Hedge Fund Meltdowns by the New York Times:

http://tinyurl.com/337j9t

SEE ALSO:

Mortgage Originated Credit Crunch May Just Be Beginning

(Excerpt):

Under the new market structure today, fixed interest fund managers are not in the mortgage lending business like the banks were… They don’t have to buy mortgages. They could just as soon hold treasuries… What if most of the world’s big fixed interest fund managers suddenly decide to go risk adverse, and sharply slow, or even stop purchasing mortgage securities[?] The entire global mortgage market would seize up… The whole structure of the [mortgage] security presumes there will be… buyers of the low quality tiers. When [that] end of the market dries up, you can’t sell the higher quality tiers either. So the entire market just shuts down. (MORE)

http://usmarket.seekingalpha.com/article/44233

As far as I can tell (as a total layman), we are only at the beginning of this disaster. With the one-two punch of tightnening credit and impending ARM rate resets, more homeowners will go into default -- and I'm not talkin' subprime types, either. There is going to be a cascading effect of defaults, negative market reaction, a further tightening of credit availability resulting in fewer people buying (or refinancing) homes, in turn resulting in an ever-increasing glut of unsold homes and defaults, further exacerbating the situation and, on top of that, a slowing of consumer spending as this all comes unraveled.

If someone out there who is much more well-versed than I in the world of economics can disabuse me of such notions, please do.

re: We have seen this coming.

Yes, Master Yoda, that is a fact. I thank you for the many articles to which you have pointed me and your own learned posts over the years that have given me even the modest understanding of the situation I now (think I) have.

We might also now conclude that, like virtually every other matter since Bush took (and I do mean "took") office, we have been systematically lied to about the economy. Think about it: This is the same bunch who sold us the snake oil of WMDs, who have been busted by government scientists for purposely skewing scientific data to conform to policy, etc. What makes anyone think they haven't done exactly the same thing with all the economic data put out by the government, upon which honest people rely for guidance?

As with the disaster in Iraq, these non-reality based goofballs think that they can just conjure up an alternate reality at will.

The problem is, objective reality always rears its ugly head.

An article on today's Fed action in the New York Times begins with this line:

"Saying it now feels that the recent disorder in financial markets has raised the risk of an economic downturn, the Federal Reserve today approved a half-percentage point cut in its discount rate on loans to banks."

http://www.nytimes.com/2007/08/17/business/18markets-web.html?_r=1&hp&oref=slogin

WTF??? Isn't this ass backwards? I mean, the recent disorder in financial markets is a RESULT of an economic downturn, isn't it? More and more people can't even pay their damn mortgages, for cryin' out loud!

"The economic statistics put out by the US Government are propaganda, pure and simple...Issued by government agencies, interpreted by spokespersons for the Government and the financial community ... the information we get has been manipulated to mould a public understanding favourable to the agenda of the powers that be."

-economist Peter D. Schiff

http://www.news.com.au/business/story/0,23636,22234638-462,00.html

Insofar as "conspiracy theories", isn't this precisely why anti-trust laws were enacted? It's not like we can inherently trust people just because they have power and money!

P.S. SEE:

Plunge Protection Team

http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

And:

"We have the responsibility to prevent major financial market disruptions through development and enforcement of prudent regulatory standards and, if necessary in rare circumstances, through direct intervention in market events".

-Remarks by Chairman Alan Greenspan at the Catholic University Leuven, Leuven, Belgium (January 14, 1997)

http://www.federalreserve.gov/Boarddocs/Speeches/1997/19970114.htm

The problem with the Bush Administration and the "dead-enders" who still support it was identified by Ron Suskind back in 2004 in his New York Times Magazine piece, wherein he enlightened us to the fact that these people are not part of what they derided as the "reality-based community". Somehow, these "upper-crust C-students who know no history or geography", as Kurt Vonnegut so aptly described them, are so drunk with their own power that they believe themselves to be God: They need merely speak and it must be so.

The mainstream corporate media, rather than challenging at every turn the delusions of this bunch of slimy thugs, is totally culpable. They are now in the business of routinely presenting government pronouncements as "news" without even the most basic questions being asked. They are truly mere stenographers, as Stephen Colbert so courageously said to their pathetic faces.

The Democrats have shown themselves to be little better, pointedly refusing to consider impeachment (undoubtedly because so many of them embraced Bush's WMD nonsense and rush to war) or even saying a polite but firm "no" to continued funding of the Iraq disaster.

However, no matter how subservient the media or impotent the so-called "opposition party" may be, ugly reality is still there. Like gravity, it pulls us all inexorably back to terra firma, no matter how hard we flap our arms in resistance. It is reality itself that will end not only the horrible Iraq War -- albeit far too late for the hundreds of thousands devastated by it -- but virtually every other delusion of grandeur Americans have been propagandized to believe.

As Bob Dylan said, "It's a hard rain's a-gonna fall".