This got me to think about markets and what we understand of them.
The readers who understand their economics properly and/or who live in the real world don't need to read any further: this is for those who think that markets are there to be manipulated and played with, that the idea that markets are rational and operate rationally has been proved wrong by the Great Recession, or who need to learn how markets work.
First and foremost: markets are unique for each and every product (but we can generalize). This means that markets are also dynamic and unpredictable, because at the end of the day each and every market simply finds the optimum point where a maximum number of goods are exchanged for a minimum price at a given point in time. Viewed over time, markets will oscillate and move around until an equilibrium is reached. At this point markets are usually mature (or saturated, depending on how you view it) and the price is both clear and transparent: before this point is reached, markets tend to be nontransparent (i.e. you don't know what that equilibrium price is). Talking about market behavior without including time as a variable is like talking about sex without knowing anatomy: perhaps interesting, but ultimately ... unsatisfying.
Second: markets are completely and totally disinterested in intentions and plans: markets take none of that into account, but rather are ruthless, just as the Cold Equations were ruthless. They just are, like the rules of physics and chemistry.
Third: markets rarely make everyone happy. They make only three small subsets of people happy (in decreasing order): those who were able to buy something for a price they were willing to pay; those who were able to buy something for less than they willing to pay, and that tiny, tiny group of sellers who were able to sell something for more than they were willing to accept.
Everyone else? Unhappy, because they either couldn't buy or sell at the prices they wanted. Sellers are left with products that they can't make money with because no one wants to buy them, buyers don't have the objects of their desires.
And this latter point is critical: buyers must desire what is being sold. That is why we can talk about markets for wives, for husbands, for all sorts of human transactions, since services can just as easily be traded as goods are. It also means that market analysis is absolutely critical before making the decision to actually manufacture something: if there is no demand, if no one desires what you want to make, then you're never going to make a living making whatever it is you do.
Fourth: markets don't exist in a vacuum. They are where demand and supply cross. Hence while many speak of markets abstractly, the reality is that, in keeping with the first point made here, all real markets exist in a reality that is controlled by a large number of factors: factors that affect demand, factors that affect supply, factors that put limitations on both (both physical and human), as well as other unique market factors that exist for any single given market. These factors are not directly transferable, but are in many cases extremely close to similar markets, such that people can treat similar markets as being similar, despite differences.
Fifth (and finally): markets react to changes differently than you think. Change demand or supply and the markets will adjust (after all, that is all the markets are at the end of the day). The problem is that while markets react to changes, our understanding of how they change is limited by our in-depth understanding of that model. If we don't understand how a market works, we will be surprised - and invariably disappointed - by market reactions, and indeed fiddling with markets is how we got to be where we are. Moreover, markets may take on absolutely undesired behavior very slowly, taking years or even decades to reach the point where the abused market is extremely undesirable. Markets can also react, however, very quickly and can lead to massive losses (or profits!) when, for instance, a previously nontransparent market suddenly becomes transparent (exposing those who had understood it better for better or worse).
So what's my point?
First and foremost, when politicians meddle with markets - which they truly love doing - they usually do it with a goal in mind: say, for forcing subprime loans to be made, with the goal of improving low-income home ownership in a quest to improve low quality housing (i.e. preventing the urban blights known as slums). However, politicians, blindly subjective as they are, are only willing to believe the direct cause-effect relationship that led them to manipulate markets: taking into account the longer-term effects or the unexpected effect of market manipulation is something that should belong to right and proper due diligence for the government, but which has proven to be impossible to do, given the rewards that can be gained by short-term actions for political gains and the rewards that can be reaped, at least for a period of time, by ignoring due diligence entirely.
The problem also arises when there are external factors that are not included in market calculations, such as the removal of risk when sellers offer massive quantities of goods at prices that do not reflect their "true" value due to, for instance, government risk guaranties or systems of risk avoidance that transfers risk of failure from the individual to the whole (aka socialization of risk).
What I'm trying to say is that markets didn't fail us. Rather, they upset us, upset not only in the sense of apparently pointing out that things we thought were worth a lot were actually worthless, but also upset in the sense that no one wanted the market to develop in the direction it did over time. We thought that subprime loans, securitized, were investments without risk, and are upset that the markets have shown that this is not the case.
Rather, government policies failed the markets: politics trumped economics. Or so they thought: in reality, the piper must always be paid. The cold equations of the market are ignored at your peril, and we are finding out what happens when these equations are ignored.