An excellent primer on the U.S. financial crisis

By Doug Diamond and Anil Kashyap as posted at Freakonomics. I'm with Levitt: "As an economist, I am supposed to have something intelligent to say about the current financial crisis. To be honest, however, I haven’t got the foggiest idea what this all means." But with Diamond and Kashyap's help I'm a bit more conversant, and you will be, too.

It was written before news that the Fed is working on a plan to buy up distressed assets from banks:

"What we are working on now is an approach to deal with the systemic risk and the stresses in our capital markets," [Treasury Secretary] Paulson said. "As we've said for some time, the root cause of the stress in the capital markets is the real estate correction. So again we're coming together to work for an expeditious solution which is aimed right at the heart of this problem." And, that is bad debts_ or "illiquid assets" - on financial institutions' balance sheets, he said.