Question/Comment: I have a hard time understanding how some of these mortgages were ever permitted to happen. In particular, mortgages for which absolutely no documentation for verifying income or anything else were required. This allows borrowers to lie on their applications and allows mortgage brokers to encourage borrowers to do so. Why were there no checks on these fraudulent practices and unscrupulous mortgage brokers?

Paul Solman: For many reasons. Among the most prominent: Why screw up a good thing? Everyone seemed to be profiting from this arrangement.

Homeowners who previously couldn't afford to buy now COULD (and this was "the ownership society," remember, where owning a home was the policy of Democrats and Republicans alike). Mortgage brokers made a quick fee. Investors got a little extra by way of return. Ratings agencies got a lot of new business okaying the pools of mortgages. Investment banks ("IBs") made money packaging them as securities. Hedge funds profited from investing in, and/or loaning money to, the investment banks. Commercial banks made money lending to the IBs too. And Alan Greenspan's Fed kept interest rates low to maintain a buoyant economy in the aftermath of the dot.com collapse and 9/11.

This was like any boom. Or, if you prefer, bubble. The more people on the gravy train, that is, the higher the cost (and resentment) of blowing the whistle on its seamier side.

If housing prices had kept going up, FOREVER, the game could have kept on - forever.

Question/Comment: For the non-accountants among us: Hypothesize that a bank has $1000 in bad mortgages (cdos, etc) that have dropped to $100 in value. How does this adversely affect the bank if it simply holds onto them and no longer lends or takes in deposits? Understanding the Fed's rules regarding that paper loss (not realized) seems to be at the heart of the "credit" crisis.

Paul Solman: Well, the rules aren't the Fed's, they're made by FASB - the Financial Accounting Standards Board. And you understand why they exist, right? So that fly-by-night artists can't claim any old number they wish on an asset.

I'm a bank, say. I start with $100,000 of my own money - from friends and family, perhaps. I then take in a million dollars in deposits from NewsHour viewers like you and lend it to my cousin Vinnie, who bets it on a horse named Shoe. Vinnie has never been wrong before but, sad to say, the nag takes the turn too wide and the finish: Shoe last.

Uh-oh. Time for my quarterly balance sheet. On one side, "liabilities": what I OWE, that's your deposits, plus the $100,000 due my investors. (That's called "shareholder's equity": their stake in the business.) On the other side, my "assets": what I OWN. In this case, the $100,000 of original capital, sitting in my vault or on reserve with the Fed - plus, of course, the loan to Vinnie.

Now suppose I play it by the book and declare the loan a total loss? Not only are my investors and I wiped out, but so are my depositors, though they'll get their money back from the FDIC, up to $250,000 per account at the moment (and rising).

Question/Comment: Are there any banks or investment houses not involved in risky practices? I would like to deal with a financial institution that has integrity. Where can I find it?

Paul Solman: No, banks and investment banks are in an inherently risky business. But then, so is every other private firm in the world. Risk is the driver of the system: take a chance, make a killing. Or not. That's the risk part.

Integrity is a relative term. I take it your real question is: where can you find a financial institution that won't give you palpitations?

My personal answer to that is dealing with institutions through which I buy my investments directly, so they only hold my assets on my behalf. At the moment (and for many years) they include insured deposits at two banks, the U.S. government (for bonds, which you can buy and hold online), and three well established financial service institutions which hold our pension assets.

Question/Comment: Can you explain, simply, what a credit default swap is?

Paul Solman: I sure hope so.

Basically, a credit default swap or "CDS" is an insurance contract to protect against bankruptcy.

Say you own a lot of Ford Motor Co. bonds, which Ford gave you in exchange for lending money to it. But you're afraid Ford might go bankrupt, and not have enough money to pay back its bondholders. You can then buy a CDS that would pay you if Ford "defaulted" on its debts.

So you've swapped a small amount of money for a promise to be paid a much larger amount of money if a disaster occurs. Just as if you'd paid a premium on home insurance to protect against a disaster like the house burning down.

There's lot more to it, of course.

Question/Comment: This is what I don't get: If the problem is that the mortgage-backed securities hold little value because a lot of people are unable to pay their mortgages, wouldn't those securities gain value if homeowners were allowed to refinance their homes at rates they could pay? What am I missing?

Paul Solman: You are missing nothing. See the full page ads in today's (Friday's) NY Times (p. C1) and Wall St. Journal (C5) for a similar proposal. Bruce Marks of NACA, the Neighborhood Assistance Corporate of America, has been working on, and advocating, this approach for years. The Democrats have reportedly been trying to include such provisions in any bailout bill.

Question/Comment: I am 62, hoping to retire at 67. I have no debt and my money is invested (following the advice of a pricey financial adviser) in both equities and guaranteed income. I've lost a big chunk of dough in the last year. Should I move now whatever money I can to federally insured savings accounts? Won't I be locking in my losses? Help!

Paul Solman: The first question would be: What % in equities? The second question: What do you mean by "guaranteed"? By whom? For what sort of investments? Until those facts are known, no one can even begin to advise you.

That said, I'm tempted to embark on one of my long-winded responses - in this instance, on some of the verities of investing. We'll see how long I (and you) last.

The first considerations, when investing for retirement: How much will you need? Starting when? For how long?

Okay, in this case, five years is the hoped-for starting date; we don't know how much you figure to get by on thereafter; only the lord knows how long you'll live (and S/He's not telling).

So let's make up a lucky number for your standard of living: $77,777 a year, before taxes. (WARNING: For it to be a CONSTANT standard of living, the lucky number has to rise with inflation.) Furthermore, let's say you don't want to run out of money at your "due date," which at 62, assuming no life-shortening illnesses, was 84, last I looked (this afternoon).

For our own retirement planning, my wife and I use the age of 100, figuring the cushion - should there be one - would go to the kids. Frankly, we've wondered if we shouldn't extend that number to 110, having read Ray Kurzweil on life extension and supposing that there is some reasonable chance medical science is on the cusp of longevity breakthroughs.

Another email from an old friend: "Is this event the Berlin Wall of Free Market Economics? Or even, as the press backs away from the hotness of the story, the Berlin Wall of Free Market Economics crashing not with a bang but a whimper?"

Paul Solman: A watershed, perhaps, but not a wall, and certainly not the Berlin Wall, which was literally built to keep capitalism out of East Germany (or East Germans from fleeing to the capitalism of West Berlin). Unless you mean the Berlin Wall would no longer be necessary now that capitalism seems to be losing its allure.

But the metaphor is not the point. The question: How big a deal is this for "Free Market Economics"?

Well first, as many have pointed out during this entire period of what's been called "Free Market Fundamentalism," beginning with supply-side economics and the first Reagan Administration, if TANSTAAFL is true (There Ain't No Such Thing As A Free Lunch), so is TANSTAAFM: There Ain't No Such Thing As A Free Market. I have never read of a market, from the Old Testament to OTC derivatives, that didn't have rules. There is, however, a difference in the DEGREE to which rules are restrictively written, and enforced. And this is the nub of the question, I take it: Are we headed for a radically new regime of regulation?