Peak oil is definitely the unacknowledged gorilla in the room. And that’s as true in discussions of the livable-streets movement as it is in discussions of the economy. Right now oil prices have backed off, providing a moment to relax, but due to geological realities beyond our control, they’ll soon be ratcheting up again. Drivers won’t be the only ones to suffer. If you want to redesign the street — not just with paint, but with concrete and asphalt and bollards — you need heavy machinery and diesel. Not to mention lots of public money. So the livable-streets movement needs to translate its wish list into reality as soon as possible. In another few years, making major physical changes in our environment may be impossible.

I disagree, Shemp. I know that we like to refer to these bad loans as “paper,” but what was all of that toxic paper anyway? Mortgages. For homes. Many of these homes were ex-uburban McMansions in places like Stockton, California. These homes began plummeting in value and these mortgages started defaulting at exactly the same time that gasoline began ratcheting up past $3.50/gallon. There is a direct connection between the price of oil, the collapse of suburban home values and the current financial crisis.

It’s true that those were bad loans. But the bigger problem was that once the owners defaulted, there was nobody there to buy the house again. If you think that the demand and hence the value of defaulted exurban homes are likely to continue to decline as oil prices rise, then the link between peak oil and the continuation of the financial crisis is very real.

Lately, Kunstler has been right way more than he’s been wrong. Though I’m a frequent reader of his, his diagnoses often tend to be less than helpful because frankly, if you take what he says to heart than you’ll go wall yourself off in a compound in the mountains to avoid the inevitable “Mad Max” scenario that oil scarcity will cause. It’s paralysis-inducing.

The financial crisis resulted from massive over-leveraging of securities backed by Mortgages. Even a slight reduction in the rate of growth would have popped this bubble because of the 40 to 1 leveraging ratio.

We can prove that Kunstler is correct because when gas prices spiked to $4.00+ the rate that the value of a given home began to drop was directly proportional to that home’s distance from the nearest major city center. I recall the Washington Post even created a map of this produced by Zilllow.com’s data sets. This caused gridlock in finance because all the new McMansions are being built in cornfields, far from the city – it was more than enough to set off a chain reaction in the Ponzi securities.

Bailout or no bailout, it won’t change the fact that until we transition our economy to one that is less energy intensive the triangle of finance, insurance, and real-estate will remain a perpetual powderkeg, with the price and availability of oil&gas being the fuse to light it. Unfortunately the USA is at the end of the worldwide supply chain for oil & gas distribution, and exporting nations will most certainly nationalize the remaining resources for their own growth, leaving little to spare.

Realistically the only option for the USA is to build out nuclear and the remaining coal reserves, as well as all the wind and solar, and wave power we can manage to harvest, but even this will only power a fraction of our current energy consumption. That is why we must transition to a way of life that requires less energy. That means electrified railroad networks, bicycles, and dense cities surrounded by farmland. The framework of highways and suburban development is useless when oil & gas is expensive for the middle class, and this is a powderkeg that will perpetually explode in the form of finance schemes that can no longer be sustained – as well as the more mundane but painful experiences of everyday middle-class problems.