There are enough housing and economy bears out there right now that being willing to suggest things aren't half bad is grounds for excoriation in most financial media; but when one of those bears is the guy who called the S&L crisis of the 1980s, it's worth noting. Ted Forstmann, whose scathing editorial in the Wall Street Journal twenty years ago warned things would end badly for the S&L industry, is at it again: but this time, he's worried things could be much worse. "We are in a credit crisis the likes of which I've never seen in my lifetime," Forstmann warned in a new story published by the Wall Street Journal on Monday. "The credit problems in this country are considerably worse than people have said or know. I didn't even know subprime mortgages existed and I was worried about the credit crisis." Forstmann's argument centers around the money supply, and the idea that the Fed's decision to pump money into the financial system in the wake of 2001's terrorist attacks set us up for the historic fall we're now facing. By printing more money than was needed, he argues, banks and financial institutions began looking for new and creative ways to generate returns on it -- subprime mortgage lending being only one part of that exercise, and perhaps just the riskiest, but certainly not the only such area of activity. "They could not find enough appropriate uses for the money," he said in an interview with the Journal's Brian Carney. "That's why my little bank story for the kids is a fun way to put it. The money just kept coming and coming and coming and coming. What are you going to do with it? IBM only needs so much. The guy who can really pay his mortgage only needs so much." "I don't know when money was ever this inexpensive in the history of this country. But not in modern times, that's for sure." Perhaps what's telling in Forstmann's argument isn't the technical details of leverage, or of how the structure of certain collateralized debt obligations made them particularly susceptible to deterioration in the underlying assets -- it's a simpler truth about the money supply and its effect on investor's behavior, underscoring the fact that at their core, our financial markets can be simple machines. It's also a telling assessment of why so many hedge funds and private equity firms are perhaps now rushing into distressed assets, starting with mortgages first, and other assets later. If true, his assessment that we're not yet out of the second inning of the credit mess could prove to be very prescient, indeed. Such sentiment would not be out of line with the hedge funds we've spoken with, which have suggested a market for distressed mortgage loans alone that could be worth more than $1 trillion over the next two to three years.