Mortgage collapse has been experienced before. US seems to survive those quite well.
I wouldn't be as sanguine this time around, however, in that the expansion (bubble) is quite a bit larger than the fundamentals
would support, not to mention the weakness we encounter now internally (economic emasculation, especially in the manufacturing sector) vis a vis Asia, and globalization in general.
I'm not sure what you mean by fundamentals. In terms of avoiding a crash in equities, the fundamentals look extremely sober. Value stocks are trading at P/Es of 8-10; growth stocks are trading at P/Es of around 20-25. This isn't quite 1980, but valuations are much closer to 1980's than 2000's.
In the early '90s, there was a horrible real-estate crash in Boston, IIRC. Five years later, the economy was great. I see a similar situation. Here in the Midwest, real-estate prices are somewhat reasonable. In fact, they're maybe not totally sober, but at least not falling down drunk in most of the areas in the country except the coastal areas.
Second off, we need to be reminded that ARMs do come with interest rate caps. Most of them are around 9-10%. There could be a decent number of defaults hitting at the same time and causing a real-estate crash if Bernanke goes crazy and boosts interest rates 1% overnight, but if he can ease them up slowly- and current commodities prices suggest he can for now- we can let the folks that can't afford rates at 5% default first, then slowly move it up to 6% if necessary. By the time we make it to 7.5-8.5%, most of the people that are going to default will default; the other folks will find their ARMs capped around 9-10%.
You have to remember that most depressions and recessions get caused by the market getting over-exuberant everywhere
, people realizing that they were wrong, and valuations plummetting. In terms of stocks, we don't have all that far to fall. P/E's are less than twice that of 1980, when everyone thought that the world was ending for the U.S.
Finally, it's important to note that most manufacturing jobs are
cyclical anyways. I really don't see how a lack of manufacturing capacity necessarily worsens a crash. It may
lead to inflation, on the other end, but if that happens, investors will put more money into increasing manufacturing capacity at home.