Last week i wrote about the causes of the financial crisis. To sum it up, banks bet big on residential real estate and lost.

You can blame the banks if you want, but housing prices had never gone down in 100 years. It’s easy to see why banks would never anticipate them going down 15 percent in one year.

Houses are hard assets, easily marketable and had never gone down in price. The perfect collateral. Oops.

With so many houses bought with five percent or less down, a 15 percent drop in value meant the bank was left holding the bag.

When momma ain’t happy ain’t nobody happy. With the banks scared stiff, credit contracts and the whole economy slows. There is no simple way out of this mess.

One thing I didn’t mention last week is crucial to understanding the collapse. Historically banks were limited to 10 to one assets to equity leverage. When the banks bought default insurance, the government allowed them far greater leverage, in some cases 30 to one.

The default insurance gave the bank protection in the case of lender defaults. Here’s the problem: The default insurance was purchased from a handful of big insurance companies who were themselves holding huge amounts of residential real estate as assets.

When real estate dropped, the insurance companies couldn’t honor their default insurance contracts with the banks. The insurance was worthless. The banks were levered to the hilt and totally exposed. The rest is history in the making.

Many businesses depend on financing for their day-to-day operations. A simple example would be a farmer who borrows money to pay for seeds and fertilizer and pays it back when the crops are harvested. If banks won’t lend, a good chunk of the economy shuts down. This can’t be allowed to happen.

This will be expensive. First there’s the $30,000 or so in paper. Add another $5,000 in ink. The press crew at the U.S. Mint printing facility will cost another $1,000 or so. All in all, it’s going to cost at least $30,000 to print up those T-bills we’ll be selling to the Saudis and the Chinese.

In the wake of a global financial crisis, the rich will flock to the safest currency in the world. This was clear on Monday when T-bill demand skyrocketed. Safest means the country with the most stable political system, the strongest military and the biggest balance sheet. That honor is firmly held by the United States, despite the credit crisis.

When the U.S. prints money, people worry about inflation, but with the billions of dollars taken out of the economy by the real estate crisis, inflation is now a minor concern. Just watch the price of oil drop.

Can it all melt down? I suppose. Given enough fear, anything can happen. We all need to just take a deep breath and chill. If we do, this too will pass.

This is where the media comes in. After a few weeks of non-stop fear mongering, including the president talking about a meltdown, Americans start to ignore the message. It’s like the boy who cried wolf. After a while, you just tune it out.

The populist outrage over the bailout is an indication that Americans aren’t nearly as worried as their leaders. You get the feeling half the country would happily endure a bad recession just to kick Wall Street’s derriere.

Anyone can understand the resentment. While most Americans work for a living, the Wall Street financiers shuffle paper, buy and sell entire companies and laugh all the way to the bank. In a way, they are leeches.

But these Wall Street leeches have also created enormous prosperity by building companies like Google and Microsoft practically out of thin air. Without the unbelievable financing power of Wall Street many of our greatest companies would never have gotten off the ground.

Americans just don’t really believe we’re on the verge of a financial meltdown. We all know that in the end, the feds can come in and save the day. Sure, the money markets stalled for a day or two and scared folks, but then the government stepped in and waved its magic wand.

The money has to go somewhere. There’s too much global wealth to stuff under the mattress. It’s hard to have a true financial meltdown when the biggest problem in the world is too much money seeking a decent return. Bubbles are just going to be an ongoing part of the 21st century.

The collapse of Wall Street? Hardly. They’ll just take down the Morgan Stanley sign and put up a new one. The smart financiers who inhabit New York City will re-emerge in hedge funds, private equity funds and the like. The companies will be smaller, but that’s probably a good thing.

Buy low sell high. There’s only one balance sheet big enough to buy these cheap mortgages at rock bottom prices and hold them until the market turns - our government. The cost of this bailout will be a fraction of what everyone is fearing. History indicates this. The savings and loan bailout ended up costing very little in the end. The taxpayers may end up doing very well.

As Warren Buffett said last week, “The government has a great opportunity. If they buy things at market prices with government’s cheap funding, they should make a lot of money.”

Believe me, I feel the outrage of the free marketeers. “Let ’em sink in their own petard,” we want to shout.

Let’s be practical. Even in the worse case, the bailout will cost taxpayers $2,000 per household. A severe recession would cost that in one year, with no guarantee it wouldn’t last longer. The bailout makes financial sense.

And if the feds have to go back and negotiate more lenient terms for homeowners? That’s not exactly the worst thing in the world. Home ownership has always been considered a good thing. It gives people a stake in the system. If we are going to blow public money on something, that’s as good as any.

After all, it was the decades old Community Reinvestment Act that laid the groundwork for this whole mess by forcing banks to not discriminate against lower income borrowers. “Redlining,” prudence in lending, was made illegal. So here we are.

Make no mistake, the economy stinks. It’s been stinking for quite awhile and will continue to do so. This is going to be a nasty recession. We know how to hunker down and muddle through. Cheer up, we’re at least a third of the way through.

I’m just not buying the doomsday Great Depression II malarkey, even if the president spews it from the Rose Garden to scare us into passing his program. Not going to happen. We are too advanced, too strong.

So now we have nationalized the American banking system. What else is new? That train started chugging 200 years ago with the creation of the Federal Reserve. It finally arrived at the station.