President Bush has long assumed the outcome of the Iraq war would define his legacy. But the catastrophic collapse of the housing bubble on his watch provides a new, perhaps more ominous, threat to how his stewardship will be ranked in history.

In a matter of weeks, an investment banking industry that survived the Civil War and the Great Depression virtually vanished from the scene, weighed down by faulty mortgages and other debts.

The Federal Reserve Board’s role in the economy has been transformed in ways even economists say they can’t yet fully appreciate, save for one: The government now has a dramatically bigger presence in the private market.

And the U.S. taxpayers are now likely to be put on the hook for hundreds of billions of dollars of faulty mortgages and already have become part-owners of a giant insurance house scheduled to be carved up and sold by the next administration.

“Bush runs a real danger of going down as a Herbert Hoover in this scenario,” said Beverly Gage, a presidential historian at Yale University. “He could be seen as the man held responsible for what is happening who stood by and didn’t forge a clear direction at a moment when a clear direction is what was needed.”

Among the most striking successes of his administration then was enabling the New York Stock Exchange to reopen in less than a week and send a signal that capitalism hadn’t been beaten.
Bush used that fresh influx of political capital to launch the Iraq war even as U.S. troops were still hunting Osama bin Laden in Afghanistan. But mismanagement, mistakes and the misinformation about the need to go to war sapped the administration of credibility.

There are other ties between White House economic policy and the financial crisis.
One of the Bush administration’s signature goals has been promoting an “ownership society.” To achieve that end, the administration promoted a series of programs designed to encourage consumers to buy homes, stocks and other goods that would convert them into free market advocates. The one-time plan to privatize Social Security benefits fit into that portfolio.

Your grandchildren will be reeling from this for years to come.