I have to agree with a whole lot of folks smarter than me that this essay by Brad Delong is the best writing on this crisis so far. It confronts the key riddle - why did losing $2T of mortgage future payments lead to a destruction of $17T of wealth?

My only beef with Delong's analysis is that he doesn't factor in the behavioral economic response of the managers at loan companies competing with Fannie and Freddie. If Fannie and Freddie start underwriting toxic mortgages to follow the herd in a massively up, bubbling market, the economically rational thing for a prudent manager to do is to stop lending. However that requires making the very difficult call to shut down and lay people off at the peak of apparent profitability. It's very, very hard to see the second derivative of demand when its implications mean laying off everyone in the office during "good" times.