What the bailout didn't fix

Reagan administration economic adviser Martin Feldstein:

A successful plan to stabilize the U.S. economy and prevent a deep global recession must do more than buy back impaired debt from financial institutions. It must address the fundamental cause of the crisis: the downward spiral of house prices that devastates household wealth and destroys the capital of financial institutions that hold mortgages and mortgage-backed securities.
The recently enacted financial rescue plan does nothing to stop this spiral. . . .
Because of the 20% fall in the price of homes since the bursting of the house-price bubble, there are now some 10 million homes with mortgages that exceed the value of the house. . . .
More than $700 billion is needed to buy all of the impaired securities. The impaired mortgage-backed securities reflect not only the negative-equity mortgages but also positive-equity mortgages with very high interest rates, adjustable rates, or negative amortization. Even if the government could purchase every troubled mortgage, the prospect of future price declines would contaminate the mortgage portfolios. As house prices fall, the value of mortgage-backed securities would fall further.

Whatever happened to caveat emptor? Can't we just admit that people who bought overpriced homes (or leveraged their home equity) in the bubble market of 2002-2006 made bad decisions? Can't we simply say that mortgage lenders made bad investments and therefore lost money?

Why must this be perceived as a systemic crisis? The people who lost money, lost money, period. That money's gone, and the sooner we accept this reality, the sooner we can move forward. No point crying over spilled milk.