The significant thrust of the article is to respond to the monetarist economist conventional wisdom that the events of 1929 were caused by a failure of sufficient liquidity. That is a simple factual data issue. The conventional wisdom is simply wrong--not supported by the data. Facts are that the fed pumped money to the maximum extent possible and money supply went down because no one borrowed the money.
My point is that not only is the Conventional Wisdom which dictates the lower interest rate cheaper reserve banking answer wrong, but that the real cause of deflations and depressions can be seen in Fed policy errors that resulted in increased debt and debt service.
Your point about the difference in collateral today versus 1929 is correct--in 29, the collateral was margined stock equity and today, the principal collateral is real estate.
And it clearly makes some difference. But we differ a little in what those differences are. Common stocks are the subject of a daily quotation report--values are the trading prices on the margin--so everyone knows exactly what today's trading price is. In real estate, it is not quite so clear. I would argue that in fact, real estate is tanking but the price ranges and geographical locations in which price declines are occuring are diverse. I further differ with you on the future although that is just an opinion--I think we will ultimately see the cascading decline in values in residential real estate when owners recognize that values have slipped away from them.
Your argument that won't happen is based on two prositions: One, there is residual equity that will permit the owner to continue to hold through the slide; and two, mortgagees won't foreclose because they would rather get something out of the debt and have the property in REO.
I think existing equities are very very thin, in large part because of the refi boom. And historically lenders have taken the property back because of their experience that when they don't, maintenance stops and the value of the collateral deteriorates.
In most markets, we are working our way through the time period where the seller can wait to market the property at a high price--we are seeing deferred monthly payments; interest only; and deals where financing on the new house is structured to carry the debt service on the old house during a marketing period. That time is coming to an end.
I also think the current stock market values indirectly support real estate values. Owners continue to view their stock mutual fund portfolios as having some retained value--so they continue to hold the real estate for sale at above market prices. When the stock market declines, real estate values will follow.