A free market, some argue, has always been the key to the success of the United States. So believed Greenspan and all the main financial chiefs of the last decades. A free market will just regulate itself and allow the economy to flourish in the right directions. This theory never made much sense to me, but I am an engineer, not an economist, so I had to suspend my judgment.
After watching this excellent movie, it is now crystal clear to me why the whole system collapsed. It is precisely because the derivatives market was highly unregulated: no feedback mechanism between the credit institutions, rating agencies and the investors who bought all the junk securities; even worse, banks themselves where borrowing ridiculous amounts of money relative to their assets. To make a down to earth comparison, it's like if you were driving on the freeway with your eyes closed, at full speed, and little fuel in the tank. You will crash at some point. Unless someone throws you a giant parachute. (Which is what happened with the bailouts.)
The movie also touches on the disturbing role that the academic world played into this. A generation of future leaders was (and probably still is) taught to believe in the unstable financial structure, that has been progressively created since the seventies. This, without full disclosure of the financial conflicts that several faculty members have, being on the board of big financial giants, or their direct consultants.
I wish most Americans watched this movie.
After watching this excellent movie, it is now crystal clear to me why the whole system collapsed. It is precisely because the derivatives market was highly unregulated: no feedback mechanism between the credit institutions, rating agencies and the investors who bought all the junk securities; even worse, banks themselves where borrowing ridiculous amounts of money relative to their assets. To make a down to earth comparison, it's like if you were driving on the freeway with your eyes closed, at full speed, and little fuel in the tank. You will crash at some point. Unless someone throws you a giant parachute. (Which is what happened with the bailouts.)
The movie also touches on the disturbing role that the academic world played into this. A generation of future leaders was (and probably still is) taught to believe in the unstable financial structure, that has been progressively created since the seventies. This, without full disclosure of the financial conflicts that several faculty members have, being on the board of big financial giants, or their direct consultants.
I wish most Americans watched this movie.