The latest This American Life brings back the team of Alex Blumberg and Adam Davidson, the guys that put together the uniquely helpful Giant Pool of Money.  This time, they give perhaps the clearest explanation of the problem with so-called "bad banks."  They cover how banks go bad and the options in front of government--from letting the banks fail to taking them over in some form of nationalization.

The whole program is a must listen, but the part of the program that focuses on consumer debt stands out.  Columbia Business School David Beim says insolvent banks shouldn't lend, and he shows Alex Blumberg this chart:

In the words of Pogo, "we have met the enemy, and he is us."  The above charts household debt against GDP.  And it has what Beim calls "twin peaks."  It hits 100% twice: in 1929 and 2007.  Blumber asks Beim if he the chart scares him.  It does, and Beim says:

That chart is the most striking piece of evidence that I have that what is happening to us is something that goes way beyond toxic assets and banks.  It's something that has little to do with the mechanics of mortgage securitization, or ethics on Wall Street, or anything else.  It says the problem is us.  The problem is not the banks, greedy though they may be.  Overpaid though they may be.  The problem is us.  We have been overborrowing. 

You can download the full Bad Bank episode from This American Life here.