Further to my thoughts about economic recovery, here is a thought about the housing mess. While there are many facets to the problem, and therefore several solutions will need to be addressed, I think this a good solution for a portion of the problem.
In short, there are huge numbers of people who are living in their houses, and who want to continue to live in their houses, but are experiencing a set of similar circumstances. They are under water, i.e. the home is worth less than the value of the mortgage attached to it, they are in a subprime, adjustable loan, they have the ability to prove their income, but don't have enough savings to pay the difference between their mortgage and the new value of their home, and are therefore locked into a bad mortgage situation.
Therefore I humbly submit: for deserving borrowers (they live in the house, seek to REMAIN in the house), have them qualify (prove income documentation) for a fixed rate, 40-50 year amortized loan at a rate they can afford, and modify the note, or originate a new one. Participation in the program would have to require a period of time where the borrower would be required to stay in the home after the note is modified.
This program would be sponsored by Fannie/Freddie, and would therefore be considered to be "Agency Paper." Which would allow the instruments (which now will PERFORM at a much higher rate - typical to standard A-Paper loans) to be sold on the standard secondary markets where Fannie and Freddie live, and lenders would be open to modifying or originating a lot of these types of loans. Essentially any market in the country that has had an active residential construction market over the last 7-10 years will have a multitude of these types of borrowers.
There are also undeserving borrowers in this situation. They will not, and should not, be helped out of the mess they made for themselves. They bought the house on a nasty interest-only, or negative amortization loan, with only one goal: speculation. They possibly have more than one home in this situation, or at least have a credit history that shows this type of activity. During the process of discovery, there will become apparent several nefarious activities, and they should be prosecuted as well - these include mortgage fraud (by both/either the borrower and the mortgage originator), appraisal fraud, realtor fraud, builder fraud (like mortgage kickbacks), etc.
Those people will, and should, be held 100% responsible for their actions.