American Forum

By Hector Garcia

Taxpayers around the globe have paid over $13 trillion (more than a quarter of the gross global product) to bail out financial, insurance and other organizations as well as investors. Was this global crisis -- which with each passing hour is casting millions of Americans out of their jobs, out of their homes, and into a deep well of debt -- truly inevitable?

In 1993, the gross global product represented about $20 trillion and derivatives traded in the world markets, $12 trillion. Although derivatives have appropriate functions, such as making hedging possible and lending liquidity to markets, they are instruments whose value is not intrinsic but derived from that of mortgages, securities and other assets. Yet by 2008, while the gross global product had grown to $56 trillion, derivatives had reached approximately $530 trillion! When the derivatives' underlying value was eroded by reckless mortgage loans, the huge excess in speculation and the artificiality in the financial edifice were revealed.

As far back as the early 90s, books such as When Corporations Rule the World; hearings by the House Banking Committee on the derivatives market; leaders in academia such the former president of Harvard University, Derek Bok; and reporters, such as Thomas Friedman, laid out different consequences of the practices and policies unfolding in global markets. Economists of the stature of Joseph Stiglitz and a handful of prudent, long-time investors including Warren Buffet called attention to the growing dangers. The outcome was foreseen by those who were willing to see.