The problems began with the steady deregulation of the US financial industry that started over 20 years ago.
At this point, most observers probably feel a smug sense of
schadenfreude while watching the mess unfold. The truth is, we are all equally to blame. The gigantic scale of the present problem could not have been caused by just a handful of greedy bankers or insurance salesmen alone. It was also caused by rampant consumer and corporate demand for liquidity created by secularization. Without the availability of free-flowing funds, the dot-com boom of the 1990s would not have been possible, for example.
In a very real sense, all of us are getting our long overdue comeuppance now. The entire system is at fault, because it had been built primarily on that most primal of human instincts — GREED
The US and British banking system had, quite simply, lost touch with the real economy. When all kinds of dodgy deals — ranging from "business models" written on the back of a napkin to sub-prime mortgages — can be packaged neatly into financial instruments that are then traded on the world market, we've created a system that progressively encouraged the original lenders to neglect due diligence.
In effect, banks and moneylenders enjoyed a situation where they could keep passing the buck, and make money out of it. Hence the temptation to create more such dodgy deals.
During the boom years of banking growth, US and Euro banks frequently called Asian bankers wussies for not leveraging up and getting "optimal" returns for their capital. Well, look who has the last laugh now. At a time when US and British financial institutions are trembling, Asian banks are standing steady on rock-solid foundations of deposits.
Even then, there is little room to gloat. The world economy is so tightly interconnected today that everyone will be affected sooner or later The cost of debt has suddenly shot up over the week, which means that credit has all but dried up for many individuals and businesses. That could, in turn, affect the real economy, as many companies might suddenly find it harder to manage their cash flow. That could, in turn, lead to recession and job losses, and if the situation gets out of hand, another Great Depression could materialize
The only "good news" for now is that oil prices are falling, due to worries over slowing global demand
Hopefully, that would drag down other commodity prices as well. It would be disastrous to deal with a recession at a time of cost-driven inflation.
