The stock market got through August with the Dow Jones industrial average up 1.1 percent, but not before a wild, volatile ride, with 14 triple-digit moves in the 23-tradingday month.

The performance easily bested the 12 triple-digit moves of August 2002. This August, the Dow reached a high of 13,600 and plumbed a low of 12,900, but it ended about where it started. Although August has a reputation for being a difficult month, we survived it and now move into September, another historically difficult month.

The reasons for the volatility were, of course, the problems in the housing market and the subprime loan debacle. Lenders re-rated risk, and the price of paper, whether mortgages or commercial paper, was cut.

As the subprime problem spread to other sectors of the mortgage market and then to the commercial paper market, creditworthy borrowers were hurt. Fears of a recession grew. Calls for the Federal Reserve to take action intensified. Housing prices were affected, too. The question was, Will the difficulties in the financial markets spread to the “real economy”?

Seeds for the mortgage problems were sewn years ago, under the Greenspan administration, when interest rates remained at historically low levels for a long period of time. During that time, Greenspan, worried about deflation, and schilling for adjustable-rate mortgages, encouraged home borrowers to “take advantage” of the adjustable rates, marking the first time a Federal Reserve chairman had involved himself in the selling of home loans. Subprime borrowers and homeowners, many of them new, began to take advantage of the low rates. […]