Greed was the driving force behind the recent worship of the financial sector; and fear, as Greenspan recognised - he who thought complicated "derivative" financial instruments were the economic philosopher's stone, gaily spreading and eliminating risk - has taken over. Above all, trust, the cornerstone of good banking and financial practice, has been eroded.
One striking aspect of the credit crunch is the revelation that "they" didn't know what they were doing either. By "they" I mean the financial whizz-kids who spoke in a jargon few intelligent laypeople understood - a lack of understanding often shared by their bosses.
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Private equity groups such as Blackstone and Carlyle were conducting huge deals on the basis of an inverted pyramid. In "leveraged" deals, the base of the pyramid is your own money; the rest is borrowed. When the loans are called in, there is a domino effect.
The parallels with the "something for nothing" mania of earlier historical episodes are uncanny. As John Kenneth Galbraith wrote in The Great Crash: 1929, "Had these securities all been sold on the market, the proceeds would invariably have been less than the current value of the outstanding securities of the investment company."
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