The Republicans have been spewing the idea that welfare queen mortgages caused the collapse. David Goldstien and Kevin G Hill drive a stake through this one. It is direct racism, and anyone who speaks it is knowingly pimping racism. This includes noted Darwin Denier, Ben Stein. His father was, at least, a serious economist. Stein is simply a racist hack.

Key talking points from the debunking article:

Federal Reserve Board data show that:

_ More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

_ Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

_ Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that's being lambasted by conservative critics.

The explosion in subprime was an explosion in a credit bubble, and a direct policy, backed by Greenspan and Bush, to expand home ownership rapidly, combined with a complete lack of enforcement of even existing regulations.

Next up, Ms. O'Leary's cow did not cause the Chicago Fire, and the moon is not made of green cheese.

Anyone could see that this would be the case from the Fed's charts of high foreclosure and deliquent loan rates: there was no overlap in these areas and high minority areas, or high/low income borrowers. Instead, there was a strong overlap in the areas hit first by the current down turn: Las Vegas figured prominently, as did the chronically depressed areas of central California, which have seen high unemployment rates.

The data also reveal some important things about how the proliferation of "exotic" mortgage products contributed to the disaster. Many of these products should have been outlawed from the start. For example, teaser rate loans with balloon payments; who gets such loans?

• People trying to flip. That is people who think they will be long gone. No reason to allow this since pushing homes is a policy, not a market decision. Don't let people speculate on policy choices. Simple sanity rule.

• People who can be confused by the rate. Information asymmetry. Should not be allowed.

• People betting on refinancing. Again, not something that people should be allowed to make leveraged bets on with a home.

Hence, there is no reason for these products to exist, since the people getting them, and the people selling them, were confused, or evil, or both.

It is important to remember that assets, and houses in particular, were the monetary base. That is, they were the ruler against which all other things in the global economy were measured. If there was enough activity to support US housing, then there was enough activity to support everything else. This relationship is destroyed, and with it the foundations of that system. It was a system in trouble even before this, and that trouble created an incentive to bum rush the door.

Which is exactly what happened. Are we allowed to be shrill yet? I mean seriously. The policy of trying to inflate the monetary base, and thereby the money supply, was always dangerously misguided. Had either Greenspan or Bernanke even believed in their own professed beliefs, for example Greenspan's declaration that he wanted a "gold standard in practice" or Bernanke's own declarations of holding to inflation targets, then this would not have happened. The definition of an ideological hack, is that he hacks his own ideology to pieces when it is convenient.

Now we are on the other side, and it is a different environment. For one thing Bernanke has lost control of monetary policy, the Fed can not presently enforce it's preferred overnight rate, and yet cannot abandon it's policy of low rates, lest it cause an economic downturn which spirals out of control. While there is no formal definition of depression worthy of the name, I will over one: a recessionary period with deflationary pressures that have no tendency to equilibrium. A depression, then should be defined as a recession which has gotten out of control.

The time to have had a controlled recession was sometime ago. There was a last ditch moment last year where a dramatic increase in interest rates, coupled with broad government action, could have managed a controlled collapse. Instead, we got a botched strong dollar play. This began just after the Bear bail out, and was announced at the time. Bernanke contracted M3, but allowed M1 to slowly expand, Congress went along for the ride by passing an inflationary stimulus package, and the result was a ride up the inflation mountain, and then a sharp fall. This was, in effect, Rubinomics in reverse. But instead of engineering a dollar drought which affected other economies and bolstered American buying power, thus lowering resource costs, while increasing the value of exports where the US has absolute advantage, it did the reverse: the US was the country which had been over-consuming, and was over-dependent on hot money to keep the whole thing lubricated. Instead of the credit crunch hitting Mexico, or Argentina, or even Korea, it hit here. With dramatic results.

And here, being that it is the US banking system, meant everywhere. That's what I was told long ago when I proposed an attack on the dollar as a market strategy, an older, much wiser, individual said "and where will you put your gains?"

Now some people are advocates generally of stronger or weaker dollars. The strong dollar people point to the power of dollar diplomacy, the ability to use it as leverage for development arbitrage, and therefore imposing our preferred policies on other nations, and the stability of the dollar as a basis for confidence. The weak dollar people believe that a weaker dollar will force conservation of oil, since it will rise in price, and encourage exports, since American goods will be cheaper. For myself, I believe that one should always be thinking in trade offs. Is a stronger dollar the effect of policies that need to be pursued? Do the costs of currency movements swamp other benefits? If the US needs to raise interest rates, then raise then, and accept the results of a strong dollar. If the US needs to lower interest rates, then lower them, and accept the results of a weaker dollar. If currency effects negate the effects of policy then recognize that.

In general this flows from the basic relationships of open currency macroëconomics. In general, currency changes should be part of the equilibrium of a trading system. Economies that attract investment should see their currencies rise, economies that are raising interest rates to combat inflation should see their currencies rise to encourage importing cheaper goods. Economies that are lowering interest rates to promote growth should see their currencies fall until the growth materializes. The currency movements should be an effect, not a cause, of policy, and a means of stabilizing, not destabilizing, the balance between economies in a trading system. That, at least, is a faith in markets: that movements will be offset by equilibrium generating counter forces, which will eventually bring the production and consumption of an economic system into a dynamic balance.

This is not to say that strengthening or weakening a currency is off limits, merely that as a policy tool, it needs to be handled with greater care than simply as a cheap way of controlling inflation or promoting exports as a backdoor tariff. Still less should devaluation be used as a tax. Instead, monetary policy makers should thwart, rather than encourage, anomalies in consumption patterns that currencies cause. The US did the reverse, despite repeated warnings from the IMF and others. More Shrill, I know.

But we are all shrill now. At least, any time a central banker is quoted as saying that we have pass this bill or "we may not have an economy by Monday," shrill is, officially, policy.

And as for people like BS... they need to be ushered off the stage. Or relegated to Fox News where people like Cavuto can wave the burning cross openly with statements like:

"I don't remember a clarion call that said Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster."