[rmnunez]

For banks and financiers it makes sense to exagerate this a bit, with any luck the Fed will lower interest rates so they can sell their financial services more easily, they might even be able to get some discount loans or emergency bailouts.

But this ought to 'right itself' automatically applying simple supply and demand concepts. The claim is made housing is overpriced and this would have to reflect a strong demand. If its not hard to sell overpriced property, since these are bought with mortages, likely its too easy to get financing. If financing becomes more difficult and harder to qualify for, then there will be fewer buyers and the sellers will need to lower prices.

Just look at the thematic advertisements on this thread, want one of those "Bad Credit Loans"? You can get one and buy a million dollar home in Malibu too, it makes no difference whether you've got derogatory comments in your credit report or a negative rating, no credit history -anyone can get easy financing and the interest isn't that high.

Banks are bargaining on the climbing real estate prices guaranteeing the property will gain value quickly and you (or they if they foreclose) can sell it and cover the financing. If instead we 'burst' the balloon and foreclose on millions, tighten the credit supply and shut down the market, buyers will disappear, they won't be able to get easy financing so there will be fewer of them out there willing to speculate and the sellers will have to lower their prices or wait a lot longer.