Yesterday, the Wall Street Journal gave four of the five columns of its opinion page to Steven Gjerstad and Vernon Smith for explaining housing bubbles, the present financial crisis, and the possibly repeatable Great Depression ("From Bubble to Depression?"). It is highly unusual for the Journal to devote that much of the opinion page to one essay, and I can see why they did. It is the most informative brief explanation (I only read brief ones) of the crisis I have read yet.
Gjerstad and Smith explain what brought about this housing bubble. "Monetary policy, mortgage finance, relaxed lending standards, and tax-free capital gains provided astonishing economic stimulus: Mortgage loan originations increased an average of 56% per year for three years -- from $1.05 trillion in 2000 to $3.95 trillion in 2003!"
Then they get to the good stuff. "The unraveling of the bubble is in many ways the most fascinating part of the story, and the most painful reality we are now experiencing." I didn't now that statistics could make for such a riveting tale.
He concludes this way:
It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt -- especially mortgage debt -- that was transmitted into the financial sector during a sharp downturn. What we've offered in our discussion of this crisis is the back story to Mr. Bernanke's  analysis of the Depression. Why does one crash [the dot com bubble] cause minimal damage to the financial system, so that the economy can pick itself up quickly, while another crash leaves a devastated financial sector in the wreckage? The hypothesis we propose is that a financial crisis that originates in consumer debt, especially consumer debt concentrated at the low end of the wealth and income distribution [DCI: thanks to the compassionate interventions of Rep. Barney Frank and Sen. Chris Dodd], can be transmitted quickly and forcefully into the financial system. It appears that we're witnessing the second great consumer debt crash, the end of a massive consumption binge.