Can someone explain what happened?????

Great read at Time

If you're having a little trouble coping with what seems to be the complete unraveling of the world's financial system, you needn't feel bad about yourself. It's horribly confusing, not to say terrifying; even people like us, with a combined 65 years of writing about business, have never seen anything like what's going on. Some of the smartest, savviest people we know — like the folks
running the U.S. Treasury and the Federal Reserve Board — find themselves reacting to problems rather than getting ahead of them. It's terra incognita, a
place no one expected to visit.

On collective self-deception

"How were we supposed to know that people who lied about their income and assets would walk away from mortgages on houses in which they had no equity?
That wasn't in our computer model. It's not our fault"

LCTM, anyone? But surely, US investors learned from East Asia 97-98, right? Hmmm, I guess not:

How did this happen, and why over the past 14 months have we suddenly seen so much to fear? Think of it as payback. Fear is so pervasive today because for years the financial markets — and many borrowers — showed no fear at all. Wall Streeters didn't have to worry about regulation, which was in disrepute, and they didn't worry about risk, which had supposedly been magically whisked away by all sorts of spiffy nouveau products — derivatives like credit-default swaps. (More on those later.) This lack of fear became a hothouse of greed and ignorance on Wall Street — and on Main Street as well. When greed exceeds fear, trouble follows. Wall Street has always been a greedy place and every decade or so it suffers a blow resulting in a bout of hand-wringing and regret, which always seems to be quickly forgotten.

Deja-vu all over again. I sure hope that Johnnie Mac is reading this stuff and asking his staff to put together a short-list of Treasury Secretary, under-secretary, under-under-secretary, Chairman of the CEA, etc.. And then I hope that he gets super-strong commitments from those people to be in his putative administration. And then I hope that those people skip eating and sleeping for a few days and put together a believable plan for stopping this panic and preventing it from happening again. And that means abandoning a few dogmas about the infallibility of markets, I'm afraid.

If he thinks he deserves our support, he's got to come up with something better than "American workers are the best in the world" and "I'll fix Wall Street." He's got to come up with something better than "I'll call a commission."

If he thinks he deserves our support, he needs to make the next 10 days like FDR's first 100 days.

Let the witch hunt begin.