"Subprime borrowing was the canary in the coal mine, but it was hardly the only problem."

Tyler Cowen with an excellent post in the NY Times on what caused the crisis, although we differ in a couple of places:

"Subprime loans collapsed first because those were the investments most dependent on relatively poor borrowers who were the most likely to fail. Since then, we’ve seen asset values fall throughout the economy. Subprime borrowing was the canary in the coal mine, but it was hardly the only problem. It now seems that a wide range of asset prices were artificially inflated. "

I would say that poor lending and investment practices were more widespread than on simply subprime loans.

"Most people, including informed insiders, simply did not understand the systematic risk that financial institutions were accepting."

Here I completely disagree. I believe that extra risk was taken because of the belief that the government would intervene in a crisis. That includes the Fed.

I believe this for two reasons:

1) The reaction of the markets to Lehman.

2) When you put down the facts of the lending practices and so-called insurance policies in front of yourself, you can see why some people fell for the ruse, but you can also see that the fact that it was a possible ruse is much clearer than people are acknowledging today.