The new American investor

While not defending the Garcia's, their decision-making process and its fateful results are certainly more easily understood when considered in the context of a nation-wide credit and debt orgy over the last ten or twenty years.

Really, what did ivory tower economists and politicians expect ordinary Americans to do when the credit spigot was turned on them earlier in the decade?

Watching from afar for all these years - the junk bond boom, the Japanese stock boom, the S&L housing boom, the internet stock boom - this was their chance to "invest" in something they understood - real estate.
This comment tells you about all you need to know about the plight of the Garcias who, like many others a few years back, borrowed against the equity in one house to buy an even bigger and better one thinking that perpetually rising real estate prices would make them wealthy:

“We wanted to make it an investment,” Ms. Garcia said.

In their defense, a couple years ago, along with nearly all of Main Street, most of Wall Street (most importantly the rating agencies) also thought that home prices would climb higher in perpetuity.

It really was conventional wisdom at the time, former Fed chief Alan Greenspan counseling "nominal house prices in the aggregate have rarely fallen and certainly not by very much".

In addition to having lost the "investment" to foreclosure, also like many others, the Garcias are facing a hefty tax bill. This report in the New York Times explains:

Some of the biggest losers in the real estate slump are not purchasers of mansions they could not afford. They are buyers of second homes — or third ones, for that matter — who are sitting on a tax time bomb.

Many of these people will lose their properties in foreclosure and then stagger into bankruptcy under the weight of a sizable tax bill. While Congress has granted some tax relief to people who lose their primary homes, there is no such aid for those who fall behind on payments on a getaway condo in Las Vegas, a retirement home on the Florida coast or an old house that they are renting out for income.

Bankruptcy lawyers say they are seeing a wave of foreclosures among owners of second homes in such a position, owners who thought they had found sound advice for financial security.

Two years ago, Lilia Garcia and her husband, Jesus, bought their dream house in Linden, Calif., for $535,000 and financed it in part by taking out a bigger loan backed by their previous house in nearby Stockton. They decided to hang onto the Stockton house and rent it out, believing that it would more than pay for itself and could be sold years in the future to help pay for college for their two children.

This is the "ownership society" in reverse gear, apparently.

The new American investor is experiencing a major setback.