Economic Crisis

Almost a decade ago, it seemed clear to me that a great deal of sadness would issue form home loans exceeding home values and homeowners using such loans to support unearned lifestyles. Home buyers were cynically encouraged to speculate with borrowed money, governments welcomed this phony contribution to economic activity, and the whole economy became more brittle.
I did not predict how contagious foreclosures would be, each foreclosure resulting in devaluation of neighboring homes hence foreclosures there and so on. Banks now hold massive numbers of foreclosed and devalued properties vulnerable to destruction by copper thieves.
Banks and governments should have recognized this epidemic at least three years ago and formed a plan to nip it in the bud. Up front, they might have outlawed variable-rate loans, liar loans and greater-than-value loans, they might have restricted loans for new construction, they might have regulated mortgage backed securities, etc.
When defaults started increasing, delinquent homeowners should have immediately been offered restructured loans according to an industry-wide agreed-upon formula arranged by government. For example, each delinquent loan might be converted to a 30-year mortgage with principal and interest appropriate for the time of the original purchase, then with interest adjusted annually in proportion to the change of property value since that time. That would reduce the bank's income for a few years, until housing inventory is brought into balance, but bank's principal would be salvaged. This is a modest, more flexible variation of the THDA plan, which is coming too late.