In essence, this all gets back to the dot.com crash and 9/11. Bush/America really, really needed an economic recovery in order to pursue the WoT. What he got was an artificial housing asset-inflation spiral (with a convenient boost of 20m illegal aliens adding increased pressure on demand), but beggars can't be choosers, so we went with what we had.
But here we are at the end of the credit expansion cycle, and we cannot go any higher until debt/asset values are reset back to a sustainable income service level. That's why any entity, whether it is a government agency, financial institution, etc, holding CDO/mortgages and relying upon projected cash flows is in peril. They are not taking into account continued contraction because so far, nothing else has emerged to drive another expansionary cycle.
The bottom won't be reached until we figure out a new production/consumption model. The FIRE economy is dead, and with it, any government relying upon tax receipt levels generated by that model.