Another Good Article on Causes of the Economic Crisis

– which must be understood in order to fix it – by Michael Collins, who's boiled the history down to its essentials while identifying the key players. A few excerpts:

Our financial system looks ruined beyond repair. The credit default swaps crisis is 40 or so times bigger than the real estate meltdown over subprime derivatives. The top 25 banks in the United States are loaded down with $13 trillion in credit default swaps and the deal is coming unraveled. If we accept the highly dubious assumption that the debt from the financial meltdown needs to be repaid by us [i.e., us working stiffs, rather than just letting the players who made these risky bets absorb the losses], we're looking at $43,000 [per] citizen right now. And we're just starting.

It didn't get that way by accident. There was special legislation that enabled the current crisis.

This was classic Money Party strategy and tactics.

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The baseline requirement for the era of greed was satisfied in 1999 when Congress repealed key provisions of the Glass-Steagall act. That law was established during the first Great Depression. It tightly restricted the opportunities for reckless speculation by banks.

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Credit default swaps and other derivatives had been illegal for decades. In 1981, specific rules were set up to tighten restrictions against these schemes. But all that changed on Dec. 21, 2000 when the lame duck Congress passed the "Commodity Futures Modernization Act of 2000'" making these products legal. The legislation also barred the gathering of information that would serve as early warning on the legalized gambling on credit worthiness.

More here.

Nouriel Roubini, an NYU professor who predicted the current crisis, mentioned in a recent talk that throughout history, there's been a more or less regular cycle of economic bubble-and-bust every ten years, with only one exception during which we managed to prevent such crises from arising for a solid fifty years: the fifty years while Glass-Steagall was in effect.

Meanwhile, banks are still buying and selling credit derivatives and swaps.