Who could have guessed? Apparently all those people losing their homes are helping the economy recover faster than expected. So let's look on the bright side of all those homeless, helpless families:

The pain of millions of people across America losing their homes hardly inspires confidence in the future. But in a brutal way, it could be restoring the financial health of the U.S. consumer faster than many recognize.

One of the biggest clouds on the economic horizon is the vast amount of debt U.S. households took on during the boom years. The Federal Reserve puts total household debt, including mortgage debt, at about $13.7 trillion, or 125% of annual after-tax income, a burden that many economists believe will take several years to pare down to what they see as a more sustainable level of 100%. During that "deleveraging" process, the logic goes, U.S. consumers -- whose spending makes up more than two-thirds of the U.S. economy and about one-fifth of the global economy -- won't be able to play a leading role in any recovery.

The gloomy forecasts, though, miss an important point: Debts have value only to the extent that they are being paid, and a rapidly rising number of U.S. households aren't doing so. Those defaults are leading to losses at banks, a wave of foreclosures, trouble for neighborhoods and strife for families. But they are also providing an immediate, albeit radical, form of debt relief.

"It's not ideal, because it carries other costs," said Karen Dynan, a consumer-finance specialist at the liberal Brookings Institution think tank who recently served as a senior adviser to the Federal Reserve. But it is "going to help get household balance sheets back to the right place."

If one accounts for defaults, U.S. households' debt burden is shrinking a lot faster than the official data suggest. First American CoreLogic, which tracks the performance of mortgage loans, estimates that some 9.3% of the nation's 52.4 million mortgage holders were 60 or more days behind on their payments as of July. That represents relief on about $1.2 trillion in loans. The official data miss most of that, because the Fed doesn't erase debts until banks have foreclosed, sold the homes and taken the loans off their books, a process that can drag out for more than a year.

As a result, some economists are expecting a sharp improvement as widely watched indicators of consumers' finances catch up to reality. Joseph Carson, director of global economic research at AllianceBernstein, expects the share of households' after-tax income that goes to pay loans, rent and other financial obligations to fall to 16.3% by the middle of next year, well below the average for the 20-year period leading up to the housing boom. As of June, it stood at 18.1%.

"It's part of the cleansing process of a downturn," he said. "And it's happening a lot faster than people realize."

Via Raw Story, this very enlightening news that the Bush administration blocked efforts to enforce laws against predatory lending. We are so shocked:

Federal regulators in the Bush administration blocked attempts by state governments to prevent predatory lending practices that resulted in the financial crisis now stalking the American economy, a new study from the University of North Carolina says.

In 2004, the Office of the Currency Comptroller, an obscure regulatory agency tasked with ensuring the fiscal soundness of America's banks, invoked an 1863 law to give itself the power to override state laws against predatory lending. The OCC told states they could not enforce predatory-lending laws, and all banks would be subject only to less-strict federal laws.

Now, a research paper (PDF) from UNC-Chapel Hill's Center for Community Capital shows that those anti-predatory lending laws had actually worked. States that had stricter regulations on issuing mortgages were found to have fewer foreclosures.

"We believe that these findings are remarkable, since they suggest an important and yet unexplored link between [anti-predatory lending laws] and foreclosures," the study's authors state.

The study may be the first scientific evidence to back up claims made by many critics that the Bush administration and earlier administrations allowed last year's financial crisis to happen by not enforcing common-sense regulations on lenders.

Last year, seven months before the collapse of Lehman Brothers and the ensuing government banking bailout, then-New York Governor Eliot Spitzer wrote a Washington Post column in which he described how the Bush administration blocked states' efforts to prevent a crisis in the mortgage industry.

Spitzer wrote:

Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.

What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.

Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.

Spitzer's Post column ran a month before the New York Times reported that federal authorities were investigating Spitzer as a patron of high-end hookers, ending his political career and long-running crusade against corporate malfeasance. Some observers, including investigative reporter Greg Palast, say this was not a coincidence.

Just when you thought it couldn't get any worse, it does. But hey, isn't it great that lobbyists have managed to prevent Congress from letting bankruptcy judges lower mortgage payments? Win-win!

SOUTH BEND, Ind. — Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff’s sale had been set, and notices about the foreclosure process were piling up in her mailbox.

After Ms. James had her tenants move out, vandals hit the home. It is set for demolition, but the title is still in her name.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff’s sale had been canceled at the last minute, leaving the property title — and a world of trouble — in her name.

“I thought, ‘What kind of game is this?’ ” Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it — another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

“It is what some of us think is the next wave of the crisis,” said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.

I never had anything to begin with, and I can't tell you how strange it feels to watch all my friends free-falling down to my level:

WASHINGTON — Americans' net worth plunged a record 17.9% in 2008 as the value of their homes, stocks and other assets dropped swiftly, the Federal Reserve said Thursday in a report that did not bode well for consumer spending and the overall economy this year.

With net worth dropping so much, consumers are likely to focus on saving, not spending, as they realize they can't rely on their homes and stock portfolios as ever-rising sources of income, says RDQ Economics senior economist Conrad DeQuadros.

Such saving, while good in the long run, will likely prolong the economic slump. Consumer spending drives more than two-thirds of U.S. economic activity.

"This does point to further weakness in consumer spending going forward," DeQuadros says.

"I was confident before that I was doing fairly well," says Sullivan of Venice, Fla. But, "I have no chance at all of recouping the money by the time I need it."

U.S. net worth, a measure of households' assets minus their liabilities, such as debt, was $51.5 trillion in 2008, the lowest since 2003. The record annual drop in net worth, the first since 2002, accelerated as the year progressed. In the fourth quarter, household net worth dropped 9%, the biggest decline since quarterly records began in 1951, the Fed said.

Other details from the report:

• The value of household real estate fell for a second-consecutive year in 2008, declining 10.5%, the biggest drop on record. At $18.3 trillion, the total value of U.S. homes was the lowest in five years.

• Stock market wealth plunged a record 39.9% in 2008 to $5.5 trillion, the lowest since 1996.

• Corporate profits fell 10.8% in the September-December quarter and were down 8.8% for the year as a whole.

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Hallelujah. This plan not only offers help for families in foreclosure, but also for owner-occupants of underwater mortgages. True, it doesn't address the root cause of inflated housing values (and that must be addressed at some point), but it's a smart, comprehensive plan of attack - and as a whole, a very good beginning. Color me impressed:

MESA, Ariz. — President Obama pledged on Wednesday to help as many as 9 million American homeowners refinance their mortgages or avert foreclosure, an initiative he said would shore up distressed housing prices, stabilize neighborhoods and slow a downward spiral that he said was “unraveling homeownership, the middle class, and the American Dream itself.”

The plan, more ambitious than many housing analysts had expected, was unveiled by Mr. Obama in a high school gymnasium here, in a community that is among the nation’s hardest hit by the foreclosure crisis.

“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” the president told the crowd. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The plan has three basic components. One would help homeowners who continue to make loan payments on time, but are paying high interest rates and would otherwise not be able to refinance because they do not have enough equity or their houses are worth less than they borrowed. A second would assist people who are at risk of foreclosure by providing incentives to lenders to alter the terms of loans to make them substantially more affordable to struggling homeowners. The third would try to assure there is plenty of credit available for mortgages by giving $200 billion of additional financial backing to Fannie Mae and Freddie Mac, the two government-controlled mortgage finance companies.

The announcement came a day after Mr. Obama signed his $787 billion economic recovery package, and administration officials like Timothy F. Geithner, the Treasury secretary, made the case that they will work in tandem. In announcing the housing plan, Mr. Obama struck a populist note, criticizing speculators and “lenders who knowingly took advantage of homebuyers” with the same vehemence he used in going after Wall Street bankers for giving themselves bonuses as their companies were seeking government help.

“It will not help speculators who took risky bets on a rising market and bought homes not to live in but to sell,” he said, adding, “And it will not reward folks who bought homes they knew from the beginning they would never be able to afford.”

The plan will take effect March 4, when the administration publishes detailed rules explaining it. Most of the plan can be enacted by Mr. Obama though his executive powers, although part of it — including changing the bankruptcy laws to allow homeowners to seek changes to their mortgages through bankruptcy proceedings — will require legislation. Mr. Geithner said the administration is already in discussions with lawmakers on how to proceed.

In allowing homeowners who are not delinquent to qualify, the plan marks a sharp break from the housing policies of Mr. Obama’s predecessor, George W. Bush. Mr. Geithner and the new Housing secretary, Shaun Donovan, said the administration’s research had determined that, with 10 percent of American homeowners either in foreclosure or in danger of it, it was better to intervene early.

Why doesn't this surprise me?

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

"Expect fallout, expect foreclosures, expect horror stories," California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

The Bush administration actually got a warning about the impending economic doom. Just like old times.

RICE: I remember very well that the president was aware that there were issues inside the United States. He talked to people about this. But I don't remember the al Qaeda cells as being something that we were told we needed to do something about.

BEN-VENISTE: Isn't it a fact, Dr. Rice, that the August 6 PDB warned against possible attacks in this country? And I ask you whether you recall the title of that PDB?

RICE: I believe the title was, "Bin Laden Determined to Attack Inside the United States."

Now, the...

BEN-VENISTE: Thank you.

Let's see Bill O'Reilly follow up on this story the way he did with Barney Frank. NOT...

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Tonight's: Wow Did He Miss The Point-Gate, Mortgage-Gate and Torture-Gate.

From Zocalopublicsquare.org:

The bubble has burst; the era of sunny-side up capitalism is over. Washington may resuscitate the credit market, but will U.S. politics ever be the same? Paul Krugman, author, Professor of Economics and International Affairs at Princeton's Woodrow Wilson School, and New York Times columnist, visits Zócalo to explain exactly what happened.

Desperate to resuscitate his diminishing hopes for the White House, John McCain during tonight's presidential town hall meeting dramatically reversed course on a mortgage bailout for home owners. This spring, McCain adamantly stated "it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers." Now with his presidential campaign and the economy in dire straits alike, John McCain decided to open the federal wallet after all.

McCain's born-again concern for American home owners represents a 180 degree turn from his Scrooge-like posture in March:

"Some Americans bought homes they couldn't afford, betting that rising prices would make it easier to refinance later at more affordable rates," he said. Later he added that "any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren't."

But right out of the gate tonight, McCain conjured up a massive new program to save his ailing campaign, if not Americans on the brink of foreclosure. Now, he insisted, the government should buy existing mortgages and reprice them at new market rates. That's a far cry from his hard line only months ago. On March 25, McCain pronounced that when all else fails for distressed homeowners, Americans should just join the rapidly growing ranks of those:

"Doing what is necessary -- working a second job, skipping a vacation, and managing their budgets -- to make their payments on time."

Now down if not out in the polls, McCain has dropped his past moralizing about not helping either "big banks or small borrowers." Of course, all along John McCain was only interested in helping himself.

UPDATE: Sadly for John McCain, he chose tonight of all nights to praise eBay and its former CEO Meg Whitman as his possible choice for Treasury Secretary. On Monday, eBay announced it was laying off 1,600 employees, 10% of its entire workforce.

(This piece was crossposted at Perrspectives.)