On the way back from India, I watched the documentary Inside Job, which tells the story of the global financial meltdown of 2008. Through a series of interviews, knitted together like a thriller, it shows the different issues directly or indirectly related to the burst of the bubble, leading up to a domino-like collapse of the financial pyramid scheme the US government had tolerated to exist.
In a nutshell, loan sharks were encouraged to approve mortgages (even worse, "to chase people aggressively to take a mortgage), for people who had no collateral, nor any means to pay off the mortgage.
As it was an easy way to make a quick buck (for the banks, the bank reps, etc..), these mortgages were issued on a massive scale, even though everyone knew these loans were going to fail. And once a mortgage failed, there'd be no way for a bank to get something of value against the loan failure, as there was not collateral.
That was the basis: a bubble-loan. Or even worse: a bubble everyone concerned, knew would burst. But banks were happy: on paper, they issued loads of loans, cash was flowing, turn-over peaked. Bank reps got commissions on the loans, and the economy got a (short-term) boost.
The banks concerned where AAA-rated giants, so when they were selling those mortgages amongst each other, nobody asked any questions. Worse, those banks invented a financial scheme, valued as first class investments, where they insured themselves against the losses of the loans, and traded that insurance amongst each other, as real values, again on a massive scale.
In short: they were betting on a horse to win and at the same time, they were betting on the same horse to loose. But there was no real horse. Everyone just pretended.
The US treasury and US oversight mechanisms knew what was going on, were warned about the bubble, but did not want to regulate the whole pyramid scheme, as it involved that much money, they feared regulation would break the speed of the economic revival. So bankers were left to do as they pleased.
Of course, the bubble burst, and the whole pyramid scheme collapsed in no time, pulling down all foreign investors in those banks, and causing the first real international financial meltdown. As a consequence millions of people around the world lost their job as all of a sudden, the economy was left with no liquidity and companies had to close their business. Banks went out of business, and many people lost their savings, real savings.
This is not a happy-happy movie. I can not believe how it is possible for a government to allow the financial industry to free-wheel, purely for the short-term gain of the economy, knowing on forehand that it would only be a few years before it collapsed.
On top of that, it is impossible for me to imagine how such a large part of the US economy could have been based on "void". On something which was not real, had no real value. But then again, we are talking about the same government that allowed the Internet bubble to be built in the late 90's, collapsing in 2000.
Worse is the realization that because of the US' greed for easy money, the rest of the world suffered. It is not only the greed, but the deeply instilled financial and economic individualism pulling everyone in for a quick buck. The documentary has a short sideline about the academici, who knew what was going on, but did not say anything... Simply because there was a revolving door mechanism where economic experts from different universities were consultants for the banks involved, and paid high fees to write academic papers glorifying the bubble itself.
And to top it all off, many people who sat at the core of the 2008 meltdown, are still in power, either in corporations, or in the current Obama government.
Fast food, Fast money, Fast wars,... As they say.. "only in the US!"...
Disgusting. The only good thing that came out of it, is that internationally, the US is getting more and more resistance. A dynamic that Bush started in 2003, while invading Iraq, continues: nations are starting to realize that the "US way" is not the way to go, and move back to their own ground, economically, financially, culturally...
And that is a good thing for the equilibrium of the world.