Greatest Financial Crisis in History?

Recently, not a days passes without hearing about another shoe drop in the US financial market. Gone are the days of the Dow Jones setting records and uncontrolled home price appreciation. The financial crisis, which started with the bursting of the housing bubble last year, has snowballed into a full blown crisis that has taken down some of the big names in the financial business. The latest casualty in this crisis is Bear Sterns, the fifth largest bank in the United States and one of the primary players in the US mortgage market.
The reason for this crisis are diverse and complex including, inability of home owners to repay their mortgages, bad judgements on part of the lenders, increased use of adjustable rate mortgages, lack of education about risks associated with the different types of mortgages available, easy access to credit etc. In addition due to innovations in Securitization, the risks associated with mortgages are no more borne by the lenders. The loans were repacked into complex investment vehicles generally referred to as Mortgage Backed Securities(MBS) or Collateralized Debt Obligations(CDO) and sold to investors. This securitization process created a "Moral Hazard", because the originator, knowing they would be able to repackage and sell it to Wall Street investors, had little incentive to check the borrowers ability to repay the loan. In addition the current lack of perceived transperancy in the financial markets is leading to a Credit Crunch. Trust, when it comes to lending money, is hard to come by these days. No individual or financial institution is sure or can verify the other parties capability of paying back the loan. This is leading to a Liquidity Crisis as banks and other financial institutions which thrive on short term loans to run their business are finding it hard to access this line of credit.
Efforts by the Federal Reserve to stop the spillover of this financial crisis into other markets have been futile so far. Cutting the interest rates have stoked fears of inflation and some economists are even mentioning a growing chance of a Stagflation , a period of stagnant economic growth and high inflation. The Fed is doing all it can, even pumping in more money into the financial system so that there is enough liquidity to ease the credit crunch. The Bush administration is doing its part by announcing a plan to voluntarily and temporarily freeze the mortgages of a limited number of mortgage debtors holding. In addition the President signed into law a $168 Billion economic stimulus package, where families will be getting one time rebates of close to $1000. The administration is hoping that this will jump start the economic.
But is more consumer spending the right panacea for this current situation, or is it the root cause of the current crisis. I am not advocating that consumers should completely stop spending, but isn't the current situation a result of Americans spending way beyond their means, whether it is big houses, SUV's or flat screen TV's. And wouldn't the $168 Billion economic stimulus package encourage more of the same behavior. These are all important questions for which there are no answers as of yet. Only passage of time will tell whether the current financial crisis will be as big as "The Great Depression" of the 1930's. But with the passage of each day, it looks like we are inching towards a worldwide economic slowdown. Whether it will be akin to "The Great Depression", we will just have to wait for all the shoes to drop.