Mark Zandi in Financial Shock, his whodunit about the current mess, showcases one issue I hadn't given much thought to before: the role of the builders. Zandi points out that home building traditionally has been low-rent, marginal and undercapitalized: typically one guy with a bunch of addresses in his shirt pocket, overdrawn on his credit line at the bank. That's why God created bonding requirements, mechanics' lien statutes, and criminal penalties for failure to pay subs and suppliers.
Over the last generation, that has changed. There still are plenty of shirt-tail home builders, of coufrse. But Yahoo Finance reports that the four top companies have an aggregate market cap moving on $8 billion.
As Zandi points out, this was supposed to be a Good Thing--bringing in a strong capital base and sophisticated management was supposed to stabilize the industry.
Of course nothing of the sort happened. No doubt there are exceptions, but as a whole, home builders acted just as stupidly and suicidally as bankers. all continuing to rattle the tools without seeming to recognize that the thing they were sawing off was the branch that they sat on.
I suspect you can add this to the lenghtening list of episodes in which a plausible and even compelling "economic" story turned out to be a lot less science than PR hype. I'm not nearly well enough informed myself even to guess what might have happened, but it must have been some combination of (a) suicidal optimism (this time, it's different!) and (b) settled knavery (we'll get our money off the table before the anybody notices that the party is over). Anyway, one more time: welcome to the new world.