The blind eye

Back in 2004, the biggest wall street banks had created the instrument for the self-destruction. The credit default swap enabled investors to bet against the price of any given bond. In simple terms, it was an insurance policy, but with a crack: the buyer did not need to own the insured asset (i.e. the risks incidental to the ownership were never transferred in actual). Consider the credit swaps the titanic and the recession the ice berg. The collision being caused by the so called sane people residents of the insane world.

We all observed the the false boom in the first world developed economies, post 2002. The economic growth was super heated and fueled by borrowing. The US national debt, alone is more than USD 15.5 trillions, and the average debt per citizen is more than USD 50,000. For a moment, imagine the global debt and the consequences that will follow up in the coming times (hope it does not). Human kind has never, for sure, witnessed this kind of accumulation of debt in world history.

Private enterprises, majorly banks, were bailed out by the local and federal governments, after all the financial institutions were big credit lenders to the governments and local bodies. The governments plunged themselves into debt and any increase in interest rates means a greater proportion of the budget being consumed to meet the interest payments on debts.

In my coming blogs, I will be analyzing the blunders in Greece and Iceland in particular.