Fair enough to consider the situation and next steps as two separate issues. But I really don't think that saying that Wall Street is the largest contributor is fair. It is quite easy to pin the blame on regulators who encouraged high levels of debt and large levels of regulation that financiers sought to work around and game. They were given the incentives to pursue destructive policies (ironically those with the lowest levels of regulation - hedge funds, private equity, etc aren't causing the level of systemic risk that was initially feared).

CDS and CDO products were not to blame (they may well have have been contributors) - but if you look at the aftermath, their role was overblown (net everything out and the amounts are relatively small). Maybe that's the issue here in that there isn't a lot of understanding as to what the causes have been - and there clearly were several. Rich Kilgaard calls the problem as being one of "capital on strike". Credit markets have been freezing up because no one really knows who to trust and whether stated numbers are real and what the values of assets are. The levels of leverage is either a primary or secondary problem depending on who you ask.

The chairman of FedEx has been talking about the problem and relationship between high taxes and leverage for a long time. High taxes and double taxation of dividends means that the tax code favors companies taking on greater amounts of debt over what would be more stable but already expensive equity (ie you can expense interest but you can't expense dividend payments).

And then finally - something that we can definitely squarely lay the blame at the feet of regulators is the promotion of home ownership to those who couldn't afford it. Look at the levels and amounts of subprime lending post revisions to the CRA in 1999. Heck, if memory serves, the first subprime MBS was about a week after its passing. Bush working with a Democratic Congress was also to blame in encouraging Fannie Mae and Freddie Mac to continue buying up basically any mortgage that was written. What Wall Street did - which really complicated the mess was create investment vehicles that weren't transparent relative to the underlying assets making them difficult to understand and subsequently break apart.

Then you have such things as mark to market which really sped up the decline of financial institutions in the US. As a principle, it's laudable - the basic idea being that your assets should be valued as close to what the market thinks as close to real time as possible. The problem when it comes to regulatory capital calculations is that when you have a large market essentially stop trading, or collapse in value (even if the loans will be held to term), is that you rapidly have "undercapitalized" institutions in the worst of markets - made particularly worse by the levels of leverage they have (the situation in Europe here is far far worse - and the irony is that they are far more regulated).

Then there's the fed which kept interest rates too low for far too long which allowed for an asset bubble which in turn fueled demand for debt. And now Geithner is attempting a massive power grab in the middle of all of this. He wants to have the power to force unregulated institutions into insolvency - this despite the fact they're not like banking institutions where they are obligated to guarantee deposits up to a given amount per FDIC. So now the end result is that venture capital funds and private equity firms may need to report to the SEC resulting in higher costs and regulations - costs I would add that mean aren't going back into investing in productive parts of society for problems that may or may not even exist!

It's a big mess but everywhere you look, regulators and government agencies had their grubby little hands everywhere.