Yes, there were way too many loans made to people that shouldn't have been made, and lots of them will foreclose. That sounds bad on the surface, but even if 50% of those subprime loans default, that means that the 50% who don't default are now homeowners that wouldn't have had the chance. The rest of them who bought with little or no money down will go back to being renters, which is what they were before. At least they got the chance, however briefly, to own a home.

The companies and individuals who funded many of these loans will lose money, but that's the risk-reward system working as expected. They wanted better than typical profits, they took extra risks, and were burned. Nobody needs to be bailed out. The head of Bear Stearns lost his job, so what, that's great, there's finally accountability somewhere (if he worked in the Bush Administration, he would be getting a medal).

Countrywide Savings is reporting lower profits, that's to be expected with sharply reduced home sales and a bunch of defaults. Even if there were no subprime crisis, there would still be lots of foreclosures, as interest rates have increased dramatically, raising mortgage payments for tens of millions of homeowners. Aggressive lenders are going out of business, as they should be, as they are not to be trusted loaning out other people's money.

The biggest shame in all this is that we created an economy and mindset in America that is driven by consumption. The artificially lower interest rates of the first half of this decade encouraged lots of discretionary consumer spending, most of which was not affordable. Growth can not be sustained by short term borrowing, only investment can drive an economy. Unfortunately, the Bush Administration's economic strategy was to use interest rate-driven consumer spending to increase corporate profits. This spending has been financed by a combination of debt and sales of assets, bit of which are detrimental to the long term economic health of the country. The net effect of the subprime meltdown will be more sensible lending, which will only benefit the economy.

Well put!

If the current liquidity crisis was about the over-eager buyer or even simply the crooks getting what was coming to them, you'd be spot-on. That would represent some kind of fairness, where less lofty behavior is rewarded by consequences. It would also mean that there was going to be some kind of correspondence between the number of folks who benefited and the number of people who will suffer - that's the naive part.

In terms of scope, it would be difficult to pinpoint anything this devastating to the economy as a whole since the collapse of the savings and loan industry, but the real facts of this economic body-blow have been leaking out like a slowly collapsing balloon - no bang, just the ruinous seeping of substance. Yes, more people became homeowners, but what's on the table is the value of those homes, even more than the interest rates on the money they used to purchase. It doesn't matter if you got a great rate on the deal if what you purchased was a costly donut hole. One year it looks nearly impossible to lose money on real estate because buyers (demand) is through the roof. Technically, that's called a "bubble". Some bubbles burst more slowly than others; this one is a real snorer, unless you understand the backstory.

27 years ago, real estate transactions had to done in the first part of the month because all the little banks ran out of money every month. Enter Fannie Mae, etc. Banks could turn their loans over and reloan the money for another transaction. Then some of the smart guys in insurance and pensions noticed the profitability and started purchasing loans. Who cared? Money was money...until it wasn't loans purchased, it was a bond...and then it was a derivative....and then it wasn't insurance companies, it was hedge funds. Talk about the poison cup!

And no purer form of capitalism exists on earth than hedge funds. Unregulated, largely untaxed and remarkably invisible to regulators because they represent the truly rich who claim to need no regulatory "protection", they have sucked unimaginable amounts of money upwards and out of the domestic economy - who cares what rubble gets left behind?

We seem unable to grasp the concept that short-term capital investment may be good for a handful of people, but very very very bad for the US, and awful for the world.

Yes, even hedge funds get wounded, but rescuing them is called "capital stabilization" , never corporate welfare for the obscenely wealthy. Senators who floated trial balloons about helping overly enthusiastic families who wanted to be homeowners were decried as traitors to the boot-strap values of the nation. Senators who spoke of "stabilizing" investors are lionized as caring about homeowners - bullcrap at its shiniest!

There were 22 lobbyists for every member of the Treasury Committee when regulation of the hedge funds was on the table during the Clinton administration - want to guess who won? You're right about one thing absolutely. There has been no better friend to the hedge funds and their financial bedfellows than GWB. Everyone is getting cranky because we're coming to realize that while the big guys threw a great party and invited the little guys, the little guys are slowly discovering that they got stuck with the bill. And it's going to be expensive for everyone.

"And no purer form of capitalism exists on earth than hedge funds."

If that is true then capitalism is of no value at all. I am reminded of an earlier and much less blemished term: free enterprise. It was a concept understood by most and demonstrated in its purest form by the hippies who made and sold tie-dyed T-shirts. Too bad we've all been lulled into this deprecated state.

is up - way up - since the recession. They even revised the savings figures from negative to positive recently. There is no crisis, at the level something that will cause a recession or worse. There is pain, of course, but there is pain every month as millions of people lose/leave their jobs. But they find new jobs and life goes on. The mortgage finance industry will morph again, but it will survive.

As one who does not favor welfare, for hedge funds, banks, and farms alike, those who bet wrongly should pay for their mistakes. The market is happy to administer that punishment.

The American savings rate is a funny number. It is positive largely due to the vast savings of the wealthiest Americans. Sure, on average, the American saving rate is positive, but the median savings rate is still negative.