The Great Depression was caused by overinflated value of assets. The Roaring Twenties came to an abrupt end in 1929 when the market collapsed. Now, we have regulation to prevent such excessive leverage. You no longer can put down 5% and borrow 95% on margin to put into a "great company stock" and make 10,000%+ profit.

Today, the situation seems to be very similar to the conditions of the Roaring Twenties. Housing values accelerated upwards, doubling every year. But when bubble bursts, who will end up holding the bag? In the 1929, that ended up everyone as the people owing the money had nothing. Do people affected by current housing correction have something? BBC has an interesting article about this,

In May 2006, at the height of the housing boom, Karen Trainer bought a $500,000 apartment in California - with money borrowed from her bank.

By this year, Karen still owed $500,000 on her mortgage, but her apartment was worth $200,000 less.

So she was deep in negative equity and, to make matters worse, the interest rate on her loan was about to increase.

"I thought 'this is crazy'," Ms Trainer says. "It just does not make financial sense."

As a successful professional, Karen could comfortably have managed the higher mortgage payments her bank demanded.

Instead, she decided to stop her mortgage payments altogether and let her bank repossess her apartment.

Her credit record will be badly damaged by the decision, but Ms Trainer expects this to recover soon.

"Generally speaking, within 5 years you are about back where you were, so my husband and I decided we'll take the hit and live with it."

source: http://news.bbc.co.uk/2/hi/business/7529277.stm

Ladies and gentleman, I bring you financial armageddon with this news.

This is not an exaggeration. The debts owed on many mortgages that were interest-only, or the great bubble-mortgages (cheap rate for 3 years, then refinance). The financial sector has not screwed themselves over, they have screwed everyone over. This includes people that take care of their finances, pay (or paid off) their mortgage and never were late on their credit card payoffs.

How does it affect all of us?

The government will bail out all the institutions that are ending up holding these worthless properties. National debt will increase. Dollar will devalue. Inflation will increase.

This will affect people everywhere, including Canada, Europe, China, India. The toxic debt has reached every corner of the financial world. Hundreds of billions have already evaporated. When this is over, trillions may be at risk. Trillions that never existed in the first place, but were used as collateral for investments, including creating more worthless property.

When people start walking away, without any repercussions, the potential for damage is worse than 1929 stock market collapse. Especially in light that many view "we'll take the hit" as walking away from their debt!!! Wow!

I'm but left with a question. Why can't I just buy stock 5 cents to a dollar and when the company goes sour, I can just walk away like these homeowners?

Disclaimer: I do not have money invested in the banks, financial sector, or housing. Nor have I lost money because of these shenanigan. This is not a sour grapes post.