But none of the preceding commenters “get it right.” Each may have an accurate analysis of a certain part of the problem but fail to see that it’s not at all a single problem or even a single set of problems.

Take the matter of “securitization,” for instance. What is implied is that there exists a reserve fund based partly on anticipated magnitude of exposure and partly an estimate of the likelihood of occurence of such untoward event. But, in such schemes, class probability mathematics–on which the insurance concept is based–is no use, except insofar as is concerned selling the project to predatory ignorami (experts and politicians) and, later, to the same ignorami as exculpation post-failure to the other– prey– ignorami ( public and taxpayers).

The term in Economics (and more common lately in general use) for the occurrence is “moral hazard.” Most of you are familiar with its definition–at least to a degree similar to the excellent treatment on Wikipedia. But what Wikipedia does not treat is that the root of the “hazard” lies not in immorality (nor does Wiki maintain so) but is an inescapable facet of 1.) being human; and, 2.) being in a position to affect–or believe you can affect–the numerical data on which others have already acted or are liable to act in the future.

The core of all the tremors, the instability underlying each quake, and the root to which even a civilization-destroying final cataclysm must ultimately trace is a single one: the concept of a quantity-controlled, fractionally-backed, legal-tender status-enhanced medium of exchange.

Instead, huge amounts of taxpayers money was poured into Northern Rock to shore up its credit rating – and for no good effect.

If there were a Gordon Mac (and I think there should be two or three) then it would probably be a good thing provided that the UK government resist the temptation to control the secondary market in order to postpone the inevitable – the popping of the housing bubble.

Surely also Northern Rock’s securitisation programme is worth criticising – they did effectively go bankrupt.

I wouldn’t be too criticial of securitisation actually, it’s been very effective in many areas.

Tim adds: There’s an assumption that the market thinks that’s there’s a guarantee….but that’s as far as it goes. And of course I think that securitisation was fabulous: it did exactly what it said on the tin, spread the risks. But it’s Will who lambastes the likes of Northern Rock for their securitisation programs….