4plex: So it becomes simple supply and demand. By restricting supply, the banks in essence create a price support for the existing housing stock that is for sale.

Expanding supply by releasing a flood of foreclosures would wreck that support and drive prices back down. Then the true effects of overleveraging would become immediately apparent.

My uncle, who was in investment banking with Merrill Lynch, used to say, “Leverage in reverse is a female dog”.