What happened in the run-up to 2008 was seen by everyone involved. Anyone who tells you differently either doesn't know or is being disingenuous. Anyone who has the slightest understanding of how banks work, both commercial and speculative could see that what was being done was neither wise nor prudent nor even truly worthwhile. It wasn't going to benefit anyone but the slickest and quickest. And when the house of cards fell, the Grand Capitalists stepped forward with the cry, "But, we're too big to fail!". And most everyone believed them (Iceland is a notable exception). What to do, what to do?
If anyone has been following even casually, it does not take much to understand that the "size" of these institutions; that is, the size of the numbers on their balance sheets, was in most cases hopelessly and shamelessly inflated. In terms of actual value, most of it was made up. We like to think that financial instruments are backed by something real (a car loan with a car, a mortgage with a house, money by gold or the like), but the truth is they aren’t. The so-called "value" of all the bundled paper at the time of the "crash" was six times the world gross product.
A national or regional or even world gross product, it will be remembered, is the estimated value of all the resources, products and services in possession of or produced by a given entity. In this case it was the world and the paper was "worth" six times everything the world can do. I'd say that is just slightly absurd, and to act as if it that "value" (of the paper) is "real" is patently absurd. These institutions weren't any bigger than the legendary Wizard of Oz. It is known: Beware of the man behind the curtain.
To add insult to injury, this fiction of "value" was treated seriously and the most basic rules of capitalist economics were ignored. You will recall that riskier investments (e.g. a loan to a first-time home-buyer) often carry higher interest rates than well-secured or trusted loans. That's why local banks were once more successful, for they could better estimate their degree of risk. That risk, of course, was expressed in terms of interest rates. The higher the rate, the riskier the investment; that is, the less likely it will turn out.
So, if I can buy a savings bond that will yield around 1.75% interest, I can buy a similar Greek bond that will (possibly) yield (on average over the past 15 years) 7.7%, well, yes, I perhaps stand to make more money by "investing" in Greece, but there is equally a greater chance that I won't earn anything at all. Some people like the increased risk (you have to bet a lot to win a lot), and I suppose they should be allowed to play that game. But, I also believe that they should play the game, and I should have nothing to do with it at all. The speculator's losses shouldn't be my losses. But that's what was done to the rest of us. Exactly that.
Note: This series was originally published in slightly modified form on the Daily Kos.
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