Yes, it seems to me that the best solution for the average home-owner is for the property to revert to the bond holders, in some way, and for the present owners to simply become renters. It would be ideal if they could stay in place; but if that is too difficult then they may have to move.

The WaPo yesterday had an article about a poor hispanic cleaning woman who had been pushed into a house far beyond her means by fellow hispanics. She was soon out, but the only real difficulty, aside from her disappointment at not owning her own home, seems to have been that she had to move twice.

On the other hand, the article does not make clear who made money from the three-fold run up in price in one year to her purchase price ... and who lost money by (accompanied by extensive fraudulent documentation) lending the final purchase moneys to her. I suspect that her "agent" profited. Any suggestions as to whether pensioners, rich Bear-Sterns stockholders, foreign governments or ??? were the financial losers?

An anecdote. County by county nationwide analysis needed.

And why were such lax lending policies possible? That is an historical-documentary legal question, probably not susceptible to economic analysis.
---------------------
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/22/AR2008032202086.html

N.Va. Foreclosures Form 'Ring of Fire'
Chain of Housing Crisis Hot Spots Indicates Disparity in Market Downturn

As the surge in foreclosures continues and banks repossess more and more houses, property values are declining -- but not everywhere, and not by equal measure, Thompson and other real estate agents said. No part of the region is untouched, but most foreclosures are clustered in certain neighborhoods and several troubled Zip codes. Rather than a sea of slumping housing, Northern Virginia has an island chain of hot spots.

In those areas, prices have dipped slightly, remained stable or, in some cases, increased. Average sale prices in some Arlington County neighborhoods have risen 7 percent in the past year, and one McLean neighborhood's average price has increased 13 percent.

But drive with Thompson through the hardest-hit areas of Prince William County -- the epicenter of the region's foreclosure trouble -- and the loss of value has been precipitous.

"That one's listed at $125,000," Thompson said one recent afternoon, sizing up a dowdy green rambler in Manassas Park that had been foreclosed on. It wasn't the fanciest house on the block, but it wasn't a shack. Two years ago, homes in the neighborhood were selling for $300,000 to $400,000, Thompson said.

The losses in value have been extreme. A townhouse in Manassas was being offered at $94,900 even though it was assessed at $253,900. Dozens of bank-owned properties were listed for less than $150,000, far below their assessed worth.

By and large, those properties are concentrated in lower-priced areas and Zip codes where many immigrants bought homes in recent years, often with subprime mortgages and other risky arrangements that required little down payment or documentation. In Northern Virginia and especially Prince William, many buyers were Hispanic immigrants.

"With the Hispanic community, we had a huge boom in the last few years," said Jose L. Galdos, who recently shut down his settlement company in Woodbridge and laid off his staff, having lost 85 percent of his business in the past year.

"A lot of them had adjustable rates," he said. "A lot of them are walking away from those mortgages now."

Thompson, Galdos and several other real estate specialists in Northern Virginia estimate that 70 to 80 percent of foreclosure cases they see involve Hispanic families. The number of Hispanic surnames in the trustee notices in the classifieds sections of area newspapers appears to confirm the observation.
----------------------

Dean,

Re: "let me suggest an alternative hypothesis. The financial industry gives much of its money to Democrats (ever hear of Robert Rubin?), unlike the oil industry, the defense industry, or the pharmaceutical industry. It's just possible that President Bush is not as eager to come to the aid of the Wall Street big boys as he is to come to the aid of other industries because they back the Democrats."

Assuming this organization’s numbers are accurate and valid (see links to charts below), the facts don’t seem to strongly support the premise of that hypothesis. All industries you mentioned contribute substantially to Democrats, and the split between the parties in all cases seems to track who controls Congress to a large extent, although, based on the limited years of these charts, Republicans benefited from control to a greater extent in the case of all of these industries.

Financial

http://www.opensecrets.org/industries/indus.asp?ind=F&cycle=2008

Defense

http://www.opensecrets.org/industries/indus.asp?ind=D&cycle=2008

Pharmaceutical Manufacturing

http://www.opensecrets.org/industries/indus.asp?cycle=2008&ind=H4300

Energy / Natural Resources

http://www.opensecrets.org/industries/indus.asp?ind=E&cycle=2008

I agree all of these proposals are misguided bailouts for over leveraged investment banks.

Maybe the Democrats are enthusiastically looking at bailouts because the housing bubble and collapse is mostly limited to large metropolitan areas which vote Democrat. All of California, Most of New England, most areas with restrictive zoning laws.

G.W's Texas, the Carolinas, the wheat states, all unzoned, no bubbles, no worries. (From Bush's perspective)

Steven wrote, G.W's Texas, the Carolinas, the wheat states, all unzoned, no bubbles, no worries.

You're absolutely right that excessive zoning can lead to restricted supply (thus leading to prices being bid up). But an even more important factor is the availability of undeveloped land not too distant from the urban center.

Not to mention that in a lot of places you mention (e.g. the wheat states), land rents are likely not rising much because there's little demand.