John McManus Photo: Katherine Lambert Home building, its industry leaders believe in their heart of hearts, is the engine of the U.S. economy. When new rooftops multiply, GDP steams merrily along, and when housing starts decelerate and thin to a trickle, they take the economy down for a harrowing ride.

The economy's engine has been up on blocks for going on 36 months now, because Americans are generally paralyzed and aghast at having $12 trillion in home value and stock market equity vanish into thin air in the past four calendar quarters. Not to mention 3 million jobs eliminated in what seems like a heartbeat. Perhaps as horrific for people who are suddenly faced with having no choice left except to fix their household balance sheets or suffer for it is the prospect that losing that $12 trillion and the possible doubling of unemployment rolls will cost another $12 trillion in new taxes in the years ahead.

Wall Street, Main Street, and Washington, meanwhile, are embroiled in a comedy of finger-pointing errors, the lender blaming the borrower, the borrower blaming the broker, the investor blaming the lender, everyone blaming AIG, and Capitol Hill trying to figure out who to blame and who to try to rescue from the great sucking sound of economic distress. Face it, few of us really had to deal with the significance of the term “trillion” until we watched Bear Stearns' white-collar workers file out to the streets of Manhattan with a box of their desk belongings and a look of “what just happened?” in their eyes.

Many things happened, many are to blame, and many of us will be paying the price of both idiocy, deceit, and sheer miscalculation for years and years to come, and one of the few illuminating notions we can take away from it all might well have been perfectly evident all the time: Homeownership gets its reputation as the American Dream for a reason. It's not an entitlement for all or even the majority of citizens, although policymakers and profiteers banked heavily on a theory that quantum-leap homeownership rate expansion could be engineered along the economic and social lines of quantitative easing.

Instead of an ownership society we've got a classic monster that eats its young. The instant it didn't take above-and-beyond planning, sweat equity, a parent's helping hand, an inheritance windfall, and a commitment to own a dwelling that would return value by providing shelter and safety and the feeling of home, everything changed. The house became a paper asset to be leveraged and margin-managed, and after that it became a financial component that begot financial products that in turn begot breeder-reactors of pooled, sliced, diced, and tranched global investment vehicles.

Which brings us back to the engine of the economy: America needs new home building. New home building will get its start off the blocks of paralysis first and foremost when a dozen or so public home building companies leverage their capital structures, gut their costs, and tug home buyers who are capable off the sidelines into their American Dream.

In this issue, we focus on the financial performance of those public companies. The key take-away from the analysis is that a few of them excelled not only in managing their balance sheets in 2008, but managing their company for more stress tests in the months and years ahead. Given the hard choice between shareholder value and thousands of talented associates, most companies took their medicine and chose survival.

This year and next will go far to clarify whether the engine of the economy is ready or not to come off the blocks. What's more, as various stimulus programs and tax relief measures take effect in the months ahead, each new initiative will deliver a telling indicator about which measure motivates people to buy a home or not.

The very nanosecond there is evidence of a solid floor under the V in loan-to-value, borrowers, lenders, investors, policymakers, and taxpayers will all know where they stand, and they'll work with it.