People are losing their homes and many more will lose their jobs before the mortgage meltdown works its way through the system.

To paraphrase Alan Greenspan's remarks on March 17^th, 2008, “The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War.  The crisis will leave many casualties.”

How many casualties?  Experts are predicting that in the next few years, between 15 and 20 million homeowners could have homes worth less than what they owe.  Walking away from a bad situation may actually make sense for people who mortgages that are ‘upside down’ considering the fact that refinancing is out of the question and home equity is nonexistent. 

Banks lend money to people and businesses. The money is used for investment purposes and consumer purchases like food, cars and houses. When these investments are productive the money eventually finds its way back to the bank and an overall liquidity of a well functioning economy is created. The money cycles round and round when the economy is functioning effectively.

by John Kaighn

Historically, capitalistic societies have gone through boom and bust cycles on a regular basis. The economic good times are enjoyable for everyone involved, but sometimes the exuberance can lead to downturns which are often painful. The Federal Reserve was created to help moderate the effects of an economic contraction and was given some powerful tools to affect the money supply and keep the economy out of recession.