Leonhardt:

At its core, the current crisis stems from two problems. Regulators, starting with Alan Greenspan, assumed that a real estate bubble couldn’t happen and that Wall Street could largely police itself. And households, struggling with incomes that haven’t kept up with inflation in recent years, said yes when those lightly regulated banks offered them wishful-thinking loans. No bailout can solve either problem.

This is a deep and very wide crisis - rooted in Americans' refusal to accept that in a globalized world, their free lunch is over. And so they borrowed for free lunches on the basis first of stock speculation and then real estate insanity - and the absence of any sober conservatism in fiscal and economic policy enabled them.

To my mind, what is happening now in the economy is the same as what happened in Iraq after the invasion. The denial of the American people of the reality of the world they live in has finally caught up with them. Real conservative leaders do their best to remind people of their delusions. But the Bush Republicans - the party supposed to say no and talk of limits and responsibility - did the opposite, betraying core principles for the sake of power. They enabled the delusions and encouraged the denialism in economics and war. Hence our current impasse in the economy and the Middle East: a fatal and toxic combination of a feckless, short-attention-span public and an irresponsible, denialist, anti-conservative government.

This is what reality feels like. And I have a feeling - both in the war and in the economy - the worst is yet to come.

(Hat tip: Perry)

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