My comments in red

Amid all the finger-pointing as housing markets collapse and financial markets panic, there is very little attention being paid to the fundamental economic and political decisions that led to this mess. The growth in risky subprime mortgage loans has been a key factor in the collapse of housing markets. But why were home- buyers suddenly taking out so many risky loans and lenders suddenly arranging so much "creative" financing for these borrowers ? Interest-only mortgages, where nothing is being paid on the principal for the first few years, enable many people to get started on buying a home with lower mortgage payments at the outset. But of course it is only a matter of time before the mortgage payments go up. Such borrowers can end up losing their homes. Risky mortgage loans were rare just a few years ago. As of 2002, fewer than 10 percent of the new mortgages in the United States were of this type. But, by 2006, 31 percent of all new mortgages were of this "creative" or risky type. In the San Francisco area, 66 percent of the new mortgages were of this type. Why this difference ? Because housing prices were skyrocketing in some places, so that people of modest incomes had to go out on a limb to buy a house. But why were housing prices going up so fast, in the first place ? A number of studies of communities across the United States and in countries overseas turned up the same conclusion: government restrictions on building.

While many other factors can be involved - rising incomes, population growth, construction costs - restrictions on building have been the key.

Attractive and heady phrases like "open' space" and "smart growth" have accompanied land-use restrictions that made the cost of land rise in many places to the point where it greatly exceeded the cost of the homes built on the land.

In places that resisted this political rhetoric, home prices remained reasonable.
In short, government has been the principal factor preventing the "affordable housing" that politicians talk about so much.

Politicians have also been a key factor behind pushing lenders to lend to borrowers with lower prospects of being able to repay their loans.

The huge losses of subprime lenders, some of whom have gone bankrupt, demonstrate again the consequences of letting politicians try to micromanage the economy.

Politicians trying to "micromanage" the economy and govt. restrictions on building. The bigger and more cumbersome our govt. gets the more they're screwing things up for ALL of us.

This is just ONE of the reasons the economy isn't in the best shape.