In 2005, do you think anyone would have guessed we would be in the middle of a financial disaster that looks for all the world like another Great Depression? Well, the housing market has failed and so have the banks for all intent.

Things are happening so quickly that we are losing site of some staggering figures. Iceland, an entire country, is bankrupt and its currency worthless. A $700 billion bailout that does not even include the $120 billion used to keep AIG afloat.

As bad a beating as Wall Street has taken, the drip down effect to Main Street has only begun. Finance is a fickle subject. There are plenty of hard numbers to be crunched, but consumer confidence plays a major role. Consider the housing market.

The values of homes are all about confidence. I buy a home in the first month of the year for three hundred thousand dollars. Six months later, it has an entirely different value. Physical changes can account for some of this, but most of it is confidence based.

Consider the year of 2004. Confidence in the real estate market was high. Yes, prices were high, but you could buy confidently knowing they would continue to go up. In fact, the only thing spurring on the huge appreciation gains was buyer confidence.

Now the opposite works as well. Currently, nobody has confidence in the banks and the banks have no confidence in the borrowers. This deadly mix means nobody is borrowing and there is no money to borrow even if they want to. Down goes real estate!

Is confidence the sole reason for the economic downturn? No, of course not. There are many reasons, but only consumers are going to get it turned around by getting back into the market and buying things. They need confidence to do that.

People are worried about there money. They are trying to limit risk like mad. The problem is the same goes for banks. Banks are getting money from the governments, but are not lending it because they lack any confidence that they will get it back!

So, will the housing market ever recover from this? Of course it will. It recovered from the first Great Depression and it will here as well. The issue, however, is how long it will take and how much pain will be involved.

How long will it be till real estate flips around? Nobody knows, but it does not look good for the near term. Money is just too tight. Banks are on the edge. They are holding on to any relief they get from the governments to boost their balance sheets.

Nearly everyone agrees we are in a recession at this point. Previous recessions have show a run time of between two to four years. What should you do? Cut costs and plan on living frugally for a few years.