has been "almost thoroughly discredited" over the past two years? That's kind of like saying that your child's broken leg destroys the concept of parenthood.

Then again, I don't really think that what we just went through/are going through is all that bad in the scheme of things. If this is as bad as the great depression then my grandparents were major wussies.

Your grandparents didn't have unemployment or any of the safety nets invented during the depression. Take those away and throw in a dust bowl and things would very much be like the early days of the Depression.

Well, if it really is the 1930's all over again maybe at least the double breasted suit will come back.

I want more Cole Porter!

But seriously, there are millions of Americans who wish they had the CCC again . . .

suffered a peculiar glich -- many, who ought to have known better, assumed that the Wall St securitization teams were smart. (Wrong. Sending maths and physics PhDs to consider human behavior. . . Wrong.)

Even AGreenspan, who REALLY should have known better, assumed not only brains, but honesty, too. Whoever thought those citizens filling out no-doc mortgage applications would ignore the warnings about lying? Oh, so wrong. In fact, in the late 1980's the same experiment was tried on a smaller scale with the same results. He even had a precedent!

Stupidity and mendacity. Why did AG, living in DC, forget? Why did the SEC not have competent people vetting securitization? Small gov't OK -- incompetent gov't. . .??? Is that what I pay for? Used to be that there were a lot of very smart people working for gov't in DC. Really. They were major sources for my work. And, then there was Reagan followed by a Bush, followed by Clinton followed by the third Bush -- and all those smart people are gone. Now the SEC can't even follow Wall St. maths and stats in securitization.

All of which has nothing to do with the open market system. What collapsed was the policing system. Remember, the so-called ideal open market system includes liars and fools, who, if not watched and monitored, can destroy the system.

Keep in mind that the flaws you're describing are flaws of the government, not of the market. The fatal assumption behind the recent economic problems was not that private citizens and companies would act rationally and honestly - because they did, for the most part. The fatal assumption was that government would act competently.

Government regulations laid out the rules of the game, and it was the failure of these rules that was the culprit, not the people simply following those rules.

It wasn't people simply following the rules that lead to this crisis. The rules didn't force the major banks to securitize the crap even Fannie and Freddie didn't touch. The rules didn't force Wall Street to cram as much of the securitized crap into the senior tranches and have the ratings agencies rule it triple AAA. The government didn't force Wall Street to hang on to the lucrative but exceedingly risky equity tranches. The government didn't force Wall Street to create 40 trillion dollars in notional value of CDS. It didn't force Wall Street to create sythetic CDOs. The rules didn't force people to purchase houses they could afford. Hell, the government didn't even force banks and mortgage brokers to make loans to subprime borrowers, and it certainly didn't force them to give subprime loans to people who qualified for better loans.

Or have I misinterpretted you...are you actually suggesting that the government should have had more onerous regulations and rules that prevented Wall Street, the Lenders, and the general public from acting like morons?

A good way to understand the flaw in your thinking is to consider a small, local bank prior to the FDIC. Now, if I withdraw my money, this is not an individually villainous act. It is, after all, my money. However, if everyone withdraws their money at once, the bank crashes and many people are left without assets they depended on.

What you're doing is using hindsight to redefine the act of withdrawing money from that bank as evil, rather than recognizing that the problem wasn't people acting in their own rational self-interest but rather the rules of the entire system.

Consider the Credit Default Swap. You act as if only a 'moron' would ever think of - or use - such a security. When the exact opposite is true. It's a fairly clever bit of financial legerdemain. By insuring the value of a risky security, you can subtract the risk from the equation. The only problem with CDS comes when the agency issuing the CDS doesn't have enough money to cover the simultaneous payout on enormous numbers of CDS.

Each individual purchasing a CDS made a smart and rational decision. The middle managers at places like AIG who approved the massive amounts of CDS liability were making personally wise choices (their own advancement was helped while they did not suffer much personal downside for the risk).

The only idiotic people were the folks who were in charge of regulating the market as a whole who failed to create regulations that ensured that people's self-interest matched the overall interest of the community.

To some extent, it seems like you're making the classic error of confusing a 'free market' with 'anarchy'. In order to function, a free market needs to be regulated. Otherwise, you just end up with the well-armed people stealing from the poorly armed people. So a person in favor of a free market isn't opposed to regulation any more than they're opposed to air - regulation is necessary and essential for the free market.

What 'free market proponents' are opposed to is bad regulation - regulation that is based more on class animus or social prejudices more than any rational attempt to create a productive marketplace.

I never suggested anything of the sort. I said individuals and firms collectively acted like idiots. I never said CDS were bad. I never said bank loans, or borrowing were bad. And I agree that regulations were insufficient.

Having said that, what about corporate responsibility? Simply because the government doesn't regulate something, or the regulations are lax, doesn't mean blame should fall on the government's shoulders. It didn't force individuals and institutions to take these disasterous paths, even though if it failed to regulate them.

I visitted the Grand Canyon National Park in February of last year. The government does not have rules and safety measures in place that are sufficient to prevent the death of even a mildly determined idiot. The lack of these measures does not make it the government's fault when an idiot falls to his death in the Canyon.