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And this is why I adore Paul Krugman. His column in today’s New York Times breaks down the complex issues surrounding the market’s ongoing crash into the basics that anyone with a very moderate understanding of financial markets and simple macroeconomics can follow.

What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time — in particular, financial instruments backed by home mortgages — have shut down because there are no buyers.

This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.

The origins of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.

It’s really too bad Select still stands in the way of everyone reading the full column and figuring out why the financial industry is in a panic. If you can get your hands on a print edition of the Times, you absolutely should read this one.

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