by G Mustafa Soomro, MBBS (Sindh) MRCPsych(UK), MSc( Oxford), MSc (Surrey), UK

The writer can be reached at: gmustafasoomro@gmsoomro.plus.com

Greenspan thought that the self interest of the corporations and individuals working in them would guard against any disastrous failures within the system (that they would mostly take proportionate risks). But he recently admitted that he was wrong and that in a de-regulated system the greed of corporations and individuals could become limitless (particularly when they are dealing with other people’s money).

Thus the greed lead to: 1) excessive risk taking, which is rewarded in the system by bonuses, 2) and also the blind faith that house prices could go up only, 3) also the loans were sold several times over (in the form of securities / derivatives – which not many understood how they were packaged) such that the buyers down the line did not even know what the risks were, 4) when the loans proved to be bad because of over-supply of housing units and falling house prices in the USA , they started to bring the system down like house of cards, 5) thus the governments had to absorb those loans though bailing out and capitalization (part-nationalizati on) due to the importance of the institutions involved, 6) even this has not lead to adequate thawing of the frozen credit (leading to businesses struggling for short term loans), 7) thus the recession / depression is about to dawn

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