This article is from a financial blog I follow, called Calculated Risk.  It mostly covers housing and the mortgage industry.  However, this article and it's links are well worth the read: Unemployment, A geographic Mismatch.

In order to foster the growth of a financial/information society, we've encouraged people to live beyond their means.  I think everyone believed that housing would never go down in value.  Unfortunately, our policies have caused labor rates to rise and jobs to move off shore.  Thus, we have created a monster where we encourage people to borrow money, and with the other arm, we take away their ability to pay the loans by exporting jobs.

Becoming a protectionist state isn't going to solve the problem.  We are all probably going to have to take pay cuts, and debt is going to have to be destroyed.  Banks can play with spreadhseets and pretend to make money for a while, but ultimately, we are all going to face the Iceland problem.