|Thanks for the kind words, Clark. Your thread was prescient.|
Yet in themselves, derivatives need not have become a huge risk. The drivers that made them dangerous were deregulation and corruption of political and administrative process.
By an accident of history - namely WW II - government and industry were driven into each others arms, despite regulatory reforms instituted after the crash of '29. Up until the late 70's in the UK and the US, the legacy of government control - necessitated by wartime demands - still persisted. Certainly there was a need to dial back regulation.
But instead of becoming a prescription for adjustment, deregulation became politicized: an ideology in itself. In parallel, we saw the growth of financial "innovation" and the shadow banking system, partly designed to provide conduits for (to launder) dirty money. Eventually, after years of incremental degradation disaster struck: sub-prime, promoted by a rapacious financial sector. In 2007-2008 the global economy teetered on the brink.
Taxpayers had to underwrite the failure of the financial sector's practices and "innovations", or the world would have been crushed by depression.
What do we have now? Re-regulation.
Will it be enough, or has damage exceeded the capacity for repair? Globally, we see trillions in debt accompanied by increasing social unrest and growing income disparity. Our one-time capacity for growth is - and will continue to be - constrained by rising energy costs. Not to mention ecological and climatic costs, population growth and resource decline.
Personally, I'm not optimistic. I believe the days of growth and prosperity are behind us; that the failure to exercise prudence, that the excesses of ideology and its promoters by accident or design, have imprisoned and robbed all but 1% of coming generations.