In Orange County 1 in 6 homes is worth less than the mortgage outstanding on the home. That's 1 in 6 families who can't move, can't refinance and are throwing good money after bad. For folks who bought in 2005-2007 it will take decades for house prices to recover. These people aren't building equity in their homes, they made a bad decision at the peak of the bubble, took on too much leverage and ran into some bad luck. That seems to be a common theme these days.
How can the economy recover when so many people are held hostage by their homes, their student loans or their credit cards? Yes, as a country we took on too much but that happens. The US has always been a debtor friendly place, bankruptcy laws are very forgiving compare to other countries - just look at all the abandoned cars in Dubai:
But in recent years the US has become far less debtor friendly - at least for consumers. Student loans cannot be discharged in bankruptcy, they will garnish your wages, your Social Security, whatever they can get their hands on. Mortgage balances cannot be reduced in bankruptcy either - you either pay off the full balance or you walk away from the whole thing and lose your house. Imagine if corporations were subject to the same laws? It would be a disaster! Why do we subject families to such hardship but exempt corporations? We screwed up, give us a chance to fix it. This guy theorizes that we're actually in the middle of a super-crisis that started in the '70s. I'm not sure I buy it but he raises a lot of good points: