It is the Consumer IDIOT!!!!!
In the past seven years, never has our economy been so dependant on consumerism. Especially in the area of home purchases/speculation and related purchases. And when the consumer did not have enough savings to support the habbit, our lending institutions were more than happy to loan out practically infinite amounts to create a boom like none we have seen before.
Consumers, flush with trillions of newly minted cash, purchased houses, vacation properties, furniture, restaurant meals, cars and SUVs, furniture, knick knacks, and lots and lots of financial instruments.
Big Box Stores opened everywhere to supply the habbit. Loan outlets opened on practically every corner and every strip mall to keep the engine fueled. Profits went out of this world. Wages didn't go up and we really weren't producing much, but it didn't matter, we kept loaning and loaning and kept growing and growing.
Governments went nuts. Revenues started pouring in from higher sales taxes and property taxes and income taxes. Not content with simply spending their higher revenue streams, government issued trillions and trillions more in new deb fueling the bubble even furthert.
Money was sloshing around everywhere. The growth was never going to end, until people finally realized they couldn't afford their higher monthly expenses with stagnant wages. Whooops.
Defaults started. Then banks stopped lending so freely. People started cutting back. Stores started closing. State revenues started slowing. Homes started getting foreclosed. Commercial vacancies started rising. Banks started becoming financially constrained. Lending slowed even further and this is just the beginning.
Becareful when people try to compare this to 1990 Japan where RE values dropped as much as 80%. In 1990's Japan, its consumers had relatively little debt and its economy was EXPORT based. Not only that, Japan was not spending trillions on foreign entanglements.
2008 America is much more dependant on the consumer than 1990s Japan. 2008 American Consumer is much more leveraged than his Japanese counterpart. As the economy contracts, the only thing not contracting is debt. How do you suppose we are going to pay off trillions and trillions in debt now that consumers are not being loaned money to rush out and buy granite countertops?