Total Bankruptcy

Julian Delasantellis reviews a year's worth of articles on the subprime crisis for Asia Times, and tosses out a few (admittedly unrealistic) solutions for the subprime iceberg.

Here's the crux:

The reason the problem keeps getting worse all the time is that this crisis is not a static event, but a dynamic, negative feedback loop process gaining a frightful momentum all the time.

The core issue here is that every subprime property foreclosed upon and then thrown back onto the market with a foreclosure auction adds real estate supply and thus depresses prices, which makes it impossible for the next subprime borrower to re-finance, so he defaults and his property gets thrown onto the already sodden market - on it goes.

Delasantellis later claims that the media and policymakers have misidentified the crisis as "subprime" when the real issue is a "structured finance crisis."  To this writer, his explanation is a dark forest, but when he stays with basic economics, I'm getting plenty of light.  To the extent that the subprime mess started not with subprime borrowers but complicit winking between the Fed and lenders (the Fed: did they not foresee any negative consequences for capping interest rates so artifically low in the late 90s/early 00s?; the lenders: did they not foresee any negative long-term consequences for so much artifically high short-term gain?), Delasantellis is hitting the sweet spot of the real crisis.

Sure, selling off the foreclosed properties has begun to create its own market.  But just like the complicity that caused it, it's so...artificial.  And as far as the solution goes...gulp.