It is my pleasure to be here today to discuss one of the most important economic problems facing our country: the collapse of the home mortgage market and its effect on real estate values and the overall economy. Of course, in America, housing is much more than a place to live. It is a key step on the ladder of our ownership society in which ordinary people, through their own hard work and saving, get to own and participate in the greatest economic story in history: the United States of America.

There are three points to stress. First, as severe as our current problems are, neither problems nor the search for creative solutions is anything new in the American mortgage market. We have seen the development and subsequent collapse of a number of different housing mortgage models in the past 100 years. Each time a new approach was developed which worked for a while and then failed. Today’s problems are no different. The root cause of this cycle of creativity and collapse is the constant need to find low cost and liquid means of financing a product--housing--that is inherently illiquid.

Second, we must recognize that this is not a "subprime" crisis as some call it, but a problem faced by every homeowner. Over 75 million American homeowners face the prospect of historically unprecedented declines in the value of their most important asset, their homes. The consequences of this will make housing an even less liquid asset. This will not only curtail spending, but it will also have knock-on effects in our national labor market as worker mobility will become impaired. This happened in Japan during the 1990s. Solutions that focus on "subprime" problems like foreclosure but make the mortgage market even less attractive for new money are counterproductive both for lower end borrowers and for the broader public.

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Lawrence B. Lindsey is a visiting scholar at AEI.