Because they didn't know it was THAT financially stupid.

It was financially stupid because the government forced them to give loans to people who can't afford them.  (And is doing so now, see "Government assistance counts as a legitamite form of income for loans.")

What they DIDN'T know what that it would create a nation wide downswing in real estate, because it's completely unheard of.

The only other time it sorta happened was during the great depression, and even then the evidence seems to show it wasn't everywhere but just most places.

I don't have volacano insurance, because i don't live next to a volacno, if the government somehow finds a way to drop lava onto my apartment and burn all my stuff I don't think i should be blamed for overleverging my assets vs the chance of having my objects burned by lava.

In addition to what I stated above there are a number of other things that need to take place to help spur job growth. It includes reducing corporate income tax levels, and eliminating capital gains tax. People on the left side of politics will yell and scream that we are just helping the rich. Well, honestly its just smart economics that in a time of slow job growth you ease the burden of tax on businesses and taxes on profits. allowing companies to keep more money will in turn allow them to spend more money on hiring more workers. It would just be inevitable maybe not for all businesses, but for many of them. Also reduce unecessary regulations. There is too much regulating going on, and it gets in the way of the engine of a free market society.

Doing these three things in addition to reforming the overall problem in the education system puts our economy on a better positioning for more jobs, more entrepreneurial ideas, and more growth.

Ok, so run a system like this:

* Eliminate all capital gains taxes.  Individuals sell paper assets for a profit and don't pay taxes on it.

* Eliminate the alternate minimum tax, so that individuals pay no income taxes at all.

* Eliminate the inheritance tax, so that individuals receive a large lump sum all at once, and no money is taken out by the government.

So now, the only taxable revenues would be off dividends.   Would you rather have the dividends taxes on the individual or corporate level?   If so, what tax rate do you want to set it at?  Or, do you want there to be no taxes paid on dividends by anyone?

Ok, say you want to do, as the last administration did, and had dividends taxed on the corporate, not personal level.  Want to know what system you have created?  Well, you have a system where increasing numbers of people who are rich have exempted themselves completely from the tax structure. 

Now, let's say we do FULLY want you want, and you shape the economy to the position where you feel is ideal, where there is almost no government regulations, people are limited on how much they can sue for, money is free to flow whereveer, individuals can invent what they want, and so on.  Are you promising in your ideal world, that there will never ever be a recession or economic slowdown again?  Or if it happens, then what?  What will happen to reverse slowdown?  In your ideal world, what would the unemployment rate be? 

Honestly though, if you ask me, the best way to create jobs?

Let people get used to the economic reality of the situation.

No tax cuts that will later have to be raised, no stimulus spending, buying things that companies KNOW there won't be jobs after since it's all just government money.

Consumer spending will go up for good once people realize paradoxically that this is as good as it's going to get so saving up and penny pinching will only lead to a life of personal austerity... versus now where most people are just holding on, waiting for the US government to bail us out.

Investors will, eventually invest, because they want to make money and the US still has a lot going for it investments wise... otherwise they're just sitting on money that isn't doing anything.

Businesses will hire, because they'll want to expand, rather then play wait and see to see how new healthcare laws, tax laws or regulations will effect them afraid they'll have to cut those workers and lose the investment they paid a down payment for.

Then the economy will grow, and things will get better... but for real this time.

By the way for those to mention hoover.

It's worth noting that Hoover increased government spending by 15% under his presidency.

When compared to spending vs GDP this was by 7% Which was a 70% increase from the 10% it was previously.

He actually did a lot... and more then any other president. It just seems like he did nothing compared to the massive amount of cash Roosevelt spent.

On his way out Hoover said "Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom…. We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction."

smack everyone in the face and tell them to be useful (including myself).

Im not advocating that this system will be impervious to a recession or economic slowdown at all. That dream is a utopia that we will never really experience. Leftist views try to paint a picture of utopia with their policies. I am not claiming that. This is earth. We know that to earn much one needs to work much. If you put a lot of sweat and work into something you should have the right to expect something great out of it and a profit.

Im saying that using the Capital Gains tax basically punishes people for saving and investing. Why would we want to discourage saving/investing?  If more people in this country do that it will create a stronger foundation, and a firm financial backbone. All I am saying is that if you free up burdens on an economy it frees up room for growth. That is my whole point. Maybe a video that goes along with what I am saying is here:

http://www.youtube.com/watch?v=_yXINN1tD54

If you are in an environment where you believe keeping up with the Joneses requires you to build your house out of combustable materials, the end result is that you have collective stupidity that actually has been shown to happen like clockwork.

Nova did an episode on this happening and here is a clip that goes into it.  Blame what you like and keep thinking that the big bad government was responsible EXCLUSIVELY, and if it just left well enough alone, there wouldn't of been the overleveraging, and you end up having a piece of fiction that offers you security and makes you feel comfortable about what life is, but it will end up meaning you are setting yourself up to be blindsided...

So, onto the Nova clip.  Show where government meddling produces this effect (not to say it can't make it bigger and OH YES the cheerleading by Washington did do that):

The complete episode can be seen here:

http://video.pbs.org/video/1479100777/

Is the average american home lavaproofed?

Which was the point, the assets were only overleveraged because the risk management matehmatics didn't take into account a nation wide housing slump.  Something that was considered impossible by people and by the numbers.

Under normal market circumstances, there would of never been a nation wide housing slump where prices go down nationwide practically EVERYWHERE.

The housing bubble was protected from crashing because they grouped a number of derivatives in different markets versus each other which greatly lowered risk since the chances of ALL of them being in down markets and defaulting was thought to have been impossible because it had never happened before.

and more or less was until the US made a giant drive for increasing home ownership which ended up crashing the market in so many sectors at the same time.

They found a way to make neither red nor black appear on a roulette wheel that wasn't sporting any green.

As such, it caused the chain reaction meltdown.

It took government to create a match so inconceivable, nobody planned against it.  Is it really risk modlers fault that government created a negative enviroment that nobody thought could even happen?

Creating jobs is easy, fixing the economy so that good jobs are created is more challenging ...

If you simply eliminated all forms of government welfare (including personal and corporate welfare), returned to a small but effective regulatory system while drastically reducing bureaucracy, drastically cut taxes while simplifying the tax code, and eliminated the minimum wage 10 million jobs would appear overnight. Most of these jobs would be created by individuals and businesses that were "exploiting" people who had limited options because they were suddenly very affordable labor, and most of the people with limited options would tolerate these jobs because the threat of starvation is a powerful motivator to settle.

Now, being that in an environment like this new jobs would be created at a rate far faster than population growth this "exploitation" would actually be fairly short lived and few people would be working for a wage that was lower than the current minimum wage.

In order to create good jobs you need to create an environment where investment is going into making employees more productive and/or to develop new knowledge based industries. This requires freeing up investment capital that is currently allocated towards government debt (by paying down government debt) and consumer debt (by reducing total consumer debt).

And yes, no one happened to either see that Madoff also was doing stuff no one could see either.  Shame that the government was responsible for him and put a gun to people's head and order them to invest with him.  Same with Long-Term Capital Management.  Yep, the government was all behind that.  And all those Ponzi schemes, autosurfs and other nonsense that the government is behind these big bad entities to the extent that NO ONE has the power to stop it, because the government forces such leveraging.

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

The idea of a hedge fund, and what derivates are supposed to do is protect you not against the normal, but against the really odd stuff that is catastrophic.  That is what it will do, but when you end up with inane groupthink, that happens in markets, as is CLEARLY show in the experiment, then it doesn't work.  You aren't using hedging as a chance to minimize loss, you are using it to take risks you wouldn't normally, because you believe the math is foolproof, or you need to keep up with the Joneses, because if you don't show the same absurd rate of return as others are doing, then end result is that lose your job.  Well, the guys who ran this overleveraging make out like bandits and take down the banking system.

But hey, keep believing the government did it, and ONLY is the one to cause it to happen.  No way EVER do bubbles happen which aren't due to government holding guns to people's heads and telling them to leverage.

The thing about moral hazards is the people who do them still did the stupid thing.

If you want to lay fault on the government here, it is for providing a climate where there was too much money floating about that drove people to dumb things.