Raise the Hammer

Before I start my response, I agree that a great number of people (too great a number) have over leveraged themselves at their folly. Greed is commonplace.

"just because home prices have fallen, doesn't mean people have necessarily gotten poorer." Yes it does. A house is an asset. Unless your debts are devalued by an equal amount, your net worth drops. That's as basic as economics gets.

"We see this growth in the form of new products, such as the Ipod, HDTV's, smaller and cheaper P.C.'s, etc." That's not growth, that's innovation in the world of technology. If you're talking a greater percentage of the average citizen's paycheck going into the purchasing of those items, see the next paragraph.

It's not printing money. Your Zimbabwe example doesn't correlate as people know (approximately) how much money they're printing and were able to devalue their dollar accordingly, whereas no one in charge of lending ever bothered to think that housing was ridiculously overvalued or that the derivatives were worthless (Rating agencies had them rated at AAA, but magically re-evaluated them to junk status). As long as everyone was getting paid, everything was great. What you don't acknowledge, is that both the overvalued homes and the exotic financial instruments had an over-stated dollar value and that real, actual money was loaned against them (as collateral) and this money was then injected into the economy. That money is no longer being introduced to the economy.

Again to reemphasize about the "people stupid enough". 600 Trillion USD in a decade. This isn't ordinary people taking a gamble, if every person alive was involved, that would be nearly a hundred grand each. This is wholesale fraud by the world's largest banks, trading houses, insurers and rating agencies. The purest, capitalist greed gone unchecked by the government.

Based on your comments, I assume that you didn't read the article.