Even here in Memphis, the national mortgage mess has shockwaves. I hear people complaing the FED caused the mess by leaving the rate too low after 9/11 or that it raised rates too high afterwards.

I think the FED is a non-story in this. Interest rates were and are quite low. What changed is the availabilty of creative financing arrangement teaser rates.

I firmly believe this a regulatory failure. Unfortunately, the historical capitalist mantra leftover from the cold war has obscured the need for effective regulation. Economists believe that people make rational economic choices. (I remember a quote to that effect from Greenspan at the height of this.) As a lawyer, I know people as a rule in alot of situations make irrational choices. In terms of mortgages people make the choice that will lead to the best house they can afford in a 1-2 year timespan. This leads to a social externality we are facing now of evictions and government bailouts.

The governmental safety net is real and to avoid using it the policy makers must realize it exists.

Zero money down adjustable rate loans should be strictly regulated.