I have been thinking about the economic crisis

We have been told that the bailout of AIG is necessary to protect the banks, and the bailout of the banks is necessary so that they will return to making loans.

We are also told that the financial crisis is due to excess liquidity, which lead to a bubble in the prices of homes and property. Lots of money around made it possible to borrow at low enough interest rates to buy expensive homes. Of course, the development of poorly understood derivatives, and the lack of oversight of the market for contracts insuring these derivatives lead to the subprime mortgage glut.

Asians were saving too much. The American middle class was seeing their houses going up in value year after year. Why save from your income when your net worth is increasing due to the increasing value of your house. Why worry about your credit card dept when your net worth is still increasing. So the middle class was spending too much and saving too little.

Then the housing bubble burst, subprime mortages were for more than houses were worth, derivatives tanked, banks which had called their portfolios of these "AAA" rated papers "capital" found that they could no longer make loans, the insurers found that they could not pay off on the policies that they had written, and so it goes. People in debt, and people in doubt stop consuming so much; stores sell less and companies make fewer products; they lay off personnel; the newly unemployed stop consuming so much; even those employed have more doubt and save more; and so it goes.

We are told that there are still big pots of money in many funds, and held by some investors, but they are not putting that money in circulation.

We are told that a key to getting out of this mess is getting the banks to lend again. Perhaps the banks are wary of lending to people to buy property that is going down in value, or to companies that are facing falling markets in a dramatic recession. Do we really want them to make more "subprime" loans? Is that how we got into this mess in the first place?