Morning Edition had a Planet Money segment that looked back at some of the people who were struggling to pay their mortgages last year. It concluded by telling listeners that the whole problem began simply with banks lending people more money than they could pay back.
Actually, the problem began with a housing bubble, which eventually grew to $8 trillion. If house prices had not become hugely out of line with fundamentals then neither individual borrowers nor the economy as a whole would have faced the disastrous situation we now see.
If house prices had remained in line with fundamentals, then borrowers in most cases would be able to either rely on equity in their home to meet payments, at least in the short term, or sell their home and cover the mortgage. The problems came when houses lost much of their value and were worth much less the mortgage. This would not have happened in the absence of a bubble.
This plunge in house prices not only led to a collapse of construction, which had exploded as a result of bubble-inflated prices, but it also led to a collapse of consumption, which was driven by bubble wealth.
It is bad enough that NPR missed the bubble on the way up. It is incredible that it still doesn't understand the bubble even after its collapse has wrecked the economy.
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