In 1997, Asian banks and markets collapsed. There was a sudden drop in demand that the American central bank slashed interest rates to offset. This introduced great liquidity and resulted in a boom in technology investment. The year 2000 ushered in a time of great worldwide prosperity. Trillions of dollars in trade deficits mounted and for some foreign countries’ banking systems, excess dollars became a problem.
 
Between 2000 and 2006, housing prices rose an unsustainable 130 percent. Mortgage bond teams started seeing a disquieting increase in the number of subprime mortgage loans drifting into default. But the danger signs were ignored by the U.S. Congress, the Administration and the financial community, and interest rates continued to remain too low for too long.
 
The Federal Reserve, other regulatory bodies, the Congress, and the President failed to intervene believing that the markets would self-correct and police themselves. They forgot that too much self-regulation is always good for nothing. Rather, as is usually the case in all things, a fair, common sense balance needed to be struck.
 
But generally speaking, things continued to crack along just fine until rumors of troubling happenings in the financial community’s ratings-credit-reporting systems began surfacing. It seems there were too many computer bugs, glitches and downright errors being found in the ratings code, far above the normal error rate. By the summer of 2006, it was clear that the financial industry was entering a, “Houston, we have a problem,” phase.

During this same period the real estate market soared and equity loans became de rigueur while obscene amounts of money became available to U.S. consumers. With federal government insistence, home loans being made to less than creditworthy borrowers became standard practice.

This practice resulted in very low interest rates, excess capacity, bubbles in stock and real estate markets, and gradually increasing inflationary pressures. Resources, such as energy, that would be necessary to sustain this unbridled growth simply did not exist.
 
 Additionally, risk was not being factored into the cost of money, especially in the case of bonds and mortgages. Complacency, easy money and lax supervision brought about great asset inflation and an unsustainable credit boom.
 
In 1977 and 1995 the federal government had passed laws encouraging lenders to give mortgages to people who were only marginally able to afford the monthly payments. These mortgages were bundled together with less risky mortgages and the resulting packages, called derivatives, were sold to banks and other financial institutions.

All seemed to be going fairly well until 2007 when the investment bank Lehman Brothers started edging toward bankruptcy. The U.S. Government looked the other way while small surviving financial institutions panicked. Around the world, housing prices that had shot up so much faster than income, shot back down just as fast seeking lower, more sustainable levels. World governments, which up until then had pretended that this was only a U.S. financial problem, suddenly awakened and realized that the entire global financial system was teetering on the lip of an abyss.

Those holding the derivative paper based on housing mortgages panicked, and much of the global banking system froze, with nobody knowing who had the bad paper, who had the good paper, and who might go suddenly bankrupt, leaving creditors holding the bag. Added to this were greedy executives who unconscionably lined their own pockets from the coffers of the corporations entrusted to their management.
 
Who knows whether the years immediately ahead will see a significant retardation in growth or perhaps even a global economic retrenchment? But it is also possible that recovery could be meteoric. Governments, central banks and financial institutions are learning the lessons my father-in-law Charlie Cooper passed on to all who would listen, “Too much of any good thing is good for nothing.” 
 
Just as too much government regulation can derail and strangle Wall Street and our financial institutions, unbridled self-regulation can loose the greed and lawlessness too often resident in all of us and in corporation management. A fair and intelligent balance between government regulation and corporate self-regulation must always be struck.
 
To restore order, our first priority has to be to stabilize our banks and financial institutions. Without stability, global chaos will eventually destroy our financial markets. What we need is less leverage, more transparency and standardization in derivative products, larger capital bases, and a more effective supervisory process.
 
Missing in this story is anyone at any level demonstrating the kind of national and global leadership that the solution to such a crisis demands. Perhaps the investment industry is getting what it deserves, but does anyone doubt that out of this mismanaged mess there will be an alpine sized mountain range of small business failures plus massive and unnecessary unemployment among the middle and lower classes worldwide? Meanwhile mergers and consolidation at the top will result in massive amounts of money controlled by fewer and fewer managers. Is this good?

But where is the anger? Where is the assigning of responsibility? Where is the punishment for those who have put the entire global financial system and world economy at risk? Where are the voices of the leaders who understand that it is easier to build a financial system the right way, from the bottom up, than it is to try to repair it somewhere down the road -- after it collapses or veers off course? But as far as now is concerned, the American people deserve to see blood on the floor as heads roll.