Was Volcker to blame for the junk bond crisis? Absolutely not. Wall Street investors sometimes reach to riskier investment products to enhance yield. It’s the straw and the came;s back.

The projected deep recession was caused by two planes ramming into two buildings in lower Manhattan. Greenspan reacted as any Chairman should in a crisis; he injected liquidity into the system. Market forces reacted as expected.

The industry’s situation now was obvious to me a year ago, but that’s only because I was seeing it day in and day out. Funding bad loans isn’t something that anyone who’s involved in is going to go around telling everyone. Everyone that knew enough was either a part of it, or with a company that was a part of it.

The biggest risk I see is overleverage by people and business setting them up for big failure if things don’t go right. And since so many are in that boat if some start to fail and then (say in housing) houses are foreclosed on… As those house are added to the current glut that can snowball. But businesses that haven’t be convinced by investment bankers to over-leverage are in good shape. And I think the housing crisis will not alone be enough to create a huge recession.

Greenspan did very well overall, in my opinion, but that doesn’t mean he didn’t make some very bad mistakes too.

Cheap money is always a good thing in an economy. You can’t have too much of it. You just can’t. If you doubt that, check back here next year when the credit noose has tightened around the economy like a boa constrictor and I guarantee you will be singing a different tune. Interest rates are very much like taxes, duties, shipping costs, and energy costs in that they add friction and inefficiency to a market.

We are very fortunate that real estate took off after the stock market tanked. The question everyone should be asking now is, what sector will take off in this next go ’round? We need another bubble. We just don’t know where it will come from. Bubbles aren’t bad. They are very efficient. How do you make money in a bubble? Easy – get in early – and get out early. I repeat: get in early and get out early and you will profit and not get hurt.

Another part of the human element theory is that sometimes people see a relative or friend obtain a material asset. People do get envious and try to achieve the same material asset – keeping up with the Jones’s.

Personally, I think most of the lenders in the sub-prime market did not consider the human element.