All morning we have been totally fixated the minutiae of the Wall Street Meltdown. And all morning the business media has been desperately scrambling to answer our Big Pressing Questions. Did Hank Paulson do the right thing by letting Lehman fail? Paul Krugman sure hopes so! Why did Bank Of America buy Merrill yesterday instead of waiting for its stock to get pounded and getting in at a cheaper price? All morning long the CNBC people have been scratching their heads, wondering if it took some sort of "nudge" from the Fed! Okay, so here is our big problem: what do we care? There are a lot of things we'd like to understand about what the hell is going on a few blocks south of us right now, but "whether Bank of America is doing the right thing for its shareholders" is not one of them. For instance, what the hell happened? And whom should we vilify? For starters:1. Who allowed banks to borrow 40 and 50 times their cash? No seriously, who ? A couple months ago in an online chat a reader asked Washington Post staff writer Zach Goldfarb to what extent is the subprime problem multiplied by derivatives? As the emailer pointed out, "various financial investors have leveraged" their holdings in iffy mortgages by as much as 50 times their underlying value. Replied Goldfarb: "Simple answer: To a huge extent." Well then! And according to this crazy concept I read about in Krugman's column last week, it seems that in times like these, actually trying to pay off your debt while every other financial institution is doing the same thing can result in a fall in the underlying price of everything that actually leaves everyone deeper in debt, because suddenly its collateral has lost value. This totally happened in Japan! And their economy didn't grow again for another like 15 years. But did banks in Japan even tolerate leverage ratios of 40? And if so, what made us think that was a good idea? 2. To whom do they owe all this money they owe? Lehman's biggest creditor is Citigroup, which was apparently just as risk-happy as Lehman was, and generally, the answer I get to this question seems to be alternately "each other" and "the Chinese" and also occasionally "taxpayers." But I haven't seen a great breakdown. Presumably, creditors are the guys who will see to it this doesn't happen again, but are they positioned to fix stuff like the sorry state of salaries at ratings agencies and the SEC? Yeah, probably not, but we'd be interested to hear! 3. Is it true that banks were allowed to underwrite their own insurance? I'm no expert on the matter — and wow, if that isn't an understatement — but a few months back the Journal ran a story on how Merrill Lynch continued to keep peddling those bundles of mortgage-backed securities called collateralized debt obligations (CDOs) after AIG and other so-called "monolines" — not that it kept them out of trouble! — stopped underwriting a type of "insurance" on the securities known as credit-default swaps. They just did it in-house! They even came up with a dorky pet name for the practice based on the nickname of the (totally inexperienced) guy they put in charge of doing it, Ronnie. "Some employees took to saying that if they couldn't find a specialized bond insurer, known as a "monoline," to take Merrill's risk on the deal, they could resort to a Ronoline," the story explained. (Ronnie is now working for Morgan Stanley in Asia.) But here's my question: to what extent was the "risk management" problem here a function of the fact that issuers were writing their own "insurance"? 4. And hey, did terrible short-selling vulture predators make all this happen? How much money could Goldman make off Lehman's demise? Two months ago Jim Cramer wrote that short-sellers, those crafty capitalists who bet the price of a stock will fall, could "wipe [Lehman Brothers] off the face of the earth" if they wanted. The Wall Street Journal reported Lehman CEO Dick Fuld even called Goldman Sachs chairman Lloyd Blankfein to complain that he'd heard Goldman traders spreading scurrilous rumors about Lehman's imminent demise. So did they? 5. What exactly are the regulations that could avert all this stuff? Returning to Cramer, who wrote of his lonely crusade to reinstate some sort of short-selling rule called a plus tick in July, what exactly are the other major regulations that could avert this sort of disaster in the future? Could the SEC maybe administer an annual aptitude test whereby pothead CEOs like Bear's Jimmy Cayne would be forced to define basic concepts like "credit default swaps" and maybe guesstimate the potential losses to a firm if, say, it sold them to insure a $2 billion portfolio of subprime mortgages that had been leveraged 40 times in the case of a housing crisis that precipitated a 13% rate of default? Or maybe we could just cap the potential net worth of everyone in America at $75 million and then no one would try to make it all so overcomplicated in the first place? 6. Why hasn't the credit crisis yet showed up in the rest of the economy? Seriously, we've joked about this before but how long can trashy European tourists fund our consumption sector now that we've blown our stimulus check load buying 3.3% growth last quarter? The financial sector isn't the economy, but it is a huge chunk of it. When can we expect to see this meltdown reflected in our GDP numbers…and if it doesn't, does that say more about the relevance of Wall Street to the economic reality of the everyday citizen, or the relevance of GDP numbers? A Financial Drama With No Final Act In Sight [NYT] Lehman and the End of the Era of Leverage [Asia Times] Crisis On Wall Street [WSJ] Is This The Death Knell For Derivatives? [Guardian] Credit Default Swaps: Derivative Disaster Du Jour [Global Research] Wall Street's Perfect Storm [Business Week] Dealers Plan Swaps Cleanup [WSJ] Financial Russian Roulette [NYT] The Paradox of Deleveraging [Pimco]