Robert Rubin - A culprit - perhaps the main culprit. Quote from link below:
“As Clinton’s two-term Secretary of the Treasury, Rubin sharply opposed any regulation of collateralized debt obligations, credit default swaps and other so-called “derivative” financial instruments which—despite having already created havoc for companies such as Procter & Gamble and Gibson Greetings, and disastrous consequences in 1994 for Orange County, California with its $1.5 billion default and subsequent bankruptcy—were nevertheless becoming the chief engine of profitability for Rubin’s former employer Goldman Sachs and other Wall Street firms.[32] When Brooksley Born, head of the Commodity Futures Trading Commission, circulated a letter urging increased regulation of derivatives in line with a 1994 General Accounting Office report, Rubin took the unusual step (for a Secretary of the Treasury) of going public in June 1998 to denounce Born and her proposal, eventually urging that the CFTC be stripped of its regulatory authority.”
http://en.wikipedia.org/wiki/Robert_Rubin
Whether we blame Greenspan (as the media does) or Rubin as donaldo rightly points out, the derivative and credit default swaps certainly played a point in 2008 in reduced liquidity in financial institutions being able to weather the storm of events.
The total market in these vehicles of shedding or spreading risk I once read was six times the GDP of all the countries in the world — six times the global GDP.
While they are collateralized they are all marginally collateralized, and the whole market for these vehicles seems to be lending itself to domino actions rather than firewall actions.
impimp makes the point that regulation is hardly the conservative standard, but Greenspan’s approach was more libertarian no-regulation rather than modest as called for Brookley Born when she started sounding an alarm in ‘97.
There is a mix that is the right mix to sizing and regulation for something that is claimed to be “insurance” without the regulation you have for insurance and also insurance with no insurable interest.
There is such a thing as smoke detection prior to a real fire. Do we have smoke detection for this market — I think not.