Stupid banks making stupid loans - : "The key thing to remember here is that the emphasis belongs on the word financial. The economy is not the problem; lousy lending standards and the excessive use of leverage are the problem. Gales of punitive destruction are knocking down one investment bank after another, while gales of creative destruction continue to move the economy forward. In fact, real gross domestic product (GDP) has grown 2.2 percent in the past year and accelerated to a 3.3 percent growth rate in the second quarter."
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I agree with that. I'm no economist, but it looks to me as though we have a reasonably OK economy. The problem is in the twisted relationship among government, mortgage banking, and the housing industry. Since the mid 1990s government has been pressuring banks large and small to lend money to people, especially so they can buy houses they otherwise would not be able to afford. Low interest rates, weird mortgage arrangements, subsidies, mortgage insurance, relaxed government oversight, mortgage securities, REITs, you name it. Money was flowing everywhere and government was totally supportive of that. They did this to prop up the economy and because the Clinton administration was adamant that poor people should own their own homes, which is a crazy idea in my book (but that is another story). We ended up with this widespread notion that money was cheap and real estate prices were going to go up forever, so buy above your means and cash in before you go broke, and you couldn't lose. You could sell anytime you wanted. Rich and poor alike were doing it. That bubble popped, as it had to eventually, and the trouble started with those borrowers, then spread to the banks who made the loans, and now to whoever has an interest in the banks.

All that is bad, but it isn't the end of the world, and it doesn't mean we need a socialist revolution.