Re: Debt = Bad
If it was caused by too much cheap credit - then why was the solution providing even cheaper loans?
It wasn't caused by cheap credit, it was caused by collateralized debt obligations. This is packaging up debt from different sources into "packages" which are then sold on to other people, which in itself is not that much of a problem, but the crisis was caused by clever* people repeatedly packaging up and reselling debt on and on. Eventually it got to the point where the (mainly) banks holding this debt actually had no idea about the quality of this debt - the chance of them getting paid. Due to the repeated re-packaging, the debt was marked as AAA/AA+ (yes, just like ebay..)
Now, a lot of this debt was sub-prime mortgages. Whilst house prices are rising, this isn't a problem, you get a special cheap rate, because there is little risk in default - the bank takes the house, sells it, gets paid. When house prices stagnate or fall, there are no more special cheap rates, because the risk is much higher. Of course, then when the special rates expire, the debt will default.
The problem then was that these banks were all holding hundreds of billions of dollars of supposedly AA+ debt, but really its CCC or below. They get scared shitless, because they have no idea how much bad debt they have or what their exposure is, and then they stop lending to anyone (or rather, their lending rates go sky high). One crazy statistic is that 50% (or $300bn) of AA+ or greater CDOs issued between 2005-2007 were in junk status by 2009 - that's nuts!
Once banks won't lend to each other, banks start failing, government costs go through the roof (as almost every government runs on a deficit, anticipating growth that will negate the debt), and the entire modern world collapses in on itself. At that point, the only thing that can be done is to have governments step in to guarantee the debt (by taking it from the banks in return for equity), and setting ridiculously low central bank rates.
So yeah, cheap credit anticipating house price rises was the cause, but between the end of the world and stuffing the banks full of cheap credit, we choose the latter.
As to who to blame, you can blame the clever boys and girls making the CDOs; I prefer to blame the credit agencies who gave them these CDOs triple A ratings in the first place.
* Not the good clever, the "special" clever...