We had some great years in the stock markets, real estate, commodities market, and in finance. When the times were good we walked around with $$ signs in our eyes, when times became bad we blame the system, the politicians, the conservatives, the liberals and everybody in between. Of course we ourselves are not to blame; we are innocent bystanders!
Adding to the millions of home grown experts on the situation, I add my top 3 culprits:
1. We the consumer, small investor, the normal person on the street : We enjoyed the highs, always looked for better yield, borrowed more than we could afford, bought gadgets and homes we did not need or could not afford, travelled more than we needed to, and demanded more and more wages than were often justified. We invested in things we did not understand, we cheered when our investments brought us returns that were too good to be true. All these things add to the causing the bubbles we have seen in the recent past. All of us individually contribute to mass hysteria and we have to be cognisant of this.
2. Ideology without pragmatism: Complete belief that markets will correct themselves without any oversight, or the belief that an overly regulated markets will avoid bubbles and speculation are both absurd. There was enough regulation, and laws in all the major economies to avoid the blatant misuse of "financial instruments" but the regulators and politicians were asleep on the wheel. The same politicians, who claim capitalism and free markets to be the bane of society, are the ones who in countries like the US forced banks to loan money to subprime borrowers, or in countries like India regularly force banks to pardon loans to subprime borrowers. The human spirit should be free to innovate and experiment in order to grow, but there should also be an implicit understanding that there should be checks and balances to ensure that the freedom is not misused or criminalized.
3. Business without core values: Insurance companies, regular banks, investment banks, ratings agencies all started drifting from their core purpose and values. They all became companies with no other compelling vision other than "make money at all costs". And we all encouraged this behaviour. The problem with "make money at all costs" is make money for whom, the customer, the investor, or the employees?? Each has a different answer.
Swaminathan S Anklesaria Aiya of the Economic Times has published a well written article titled Who murdered the financial system? This article gives some insight into some of the causes of the muddle we are in, and rightfully suggests that for a few years we will remember the lessons learnt from 2008, and then in a decade or two we will be back to creating new bubbles. The unfortunate fallout are the retirees and the people who were just about to retire. But for the rest - as much as the present scenario is depressing it is good to remember that every bust is followed by periods of growth. So you gotta love the bubbles!