The Economic Mess

The current meltdown, as far as I understand, has several causes. One of those causes, with which I have personal knowledge, is the way that financial institutions securitized debts. This basically means that they combined a whole bunch of different loans into one package and turn it into a bond. People, like me, can buy the bond and earn interest on it as the debt is paid back. My financial advisor got me into some of these mortgage backed securities earlier this decade. (I ended up selling them before the housing market bubble burst, so I didn't lose anything)

The problem is that there is no way to tell how much of the debt that has been securitized is "good debt" and how much is "bad debt." If 75% of the mortgages that were in the mortgage backed security that I owned were "good," (meaning the mortgages were taken out my people who were qualified and able to pay it off) but 25% were "bad" (subprime mortgages or mortgages taken out by people who would be unable to pay if their adjustable rate spiked), then it's likely that I would have lost a big chunk of my investment if I had not sold when I did. (BTW, I did not sell because I realized that I was in an unwise investment. The timing of that decision had more to do with dumb luck.)

Bob Kuttner has the best overview that I found of our current situation, and several proposed regulations that would prevent a repeat of this meltdown in the future. Check it out.