The speculative system has cost America a decade in economic terms.

Galbraith and Keynes said it best---

"Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation."-Keynes

The first recorded financial crisis---



http://en.wikipedia.org/wiki/Tulip_mania

yet, throughout the ages, these have occurred steadily under all sorts of circumstances. Without a central bank/lender of last resort (the panic of 1907) and with. In foreign empires of the 1700s (Banque Royale), and with a surprising array of assets (equity in New World assets, tulips, sub-prime mortgages, internet companies).

It's about time we stop getting stuck assigning blame to the particular set of circumstances associated with each case, and look instead to the system itself, and how the speculative excesses can be reined in. Abolishing the Fed or arresting over-greedy Wall Street bankers might look like solutions (I lean towards the second), but it is important to realize that these "solutions" target the wrong set of problems; namely the need to punish agents of the present, rather than reform of systematic faults that will be exploited by future agents. Dodd-Frank won't be enough. Abolishing the Fed wouldn't be enough, and would be counter-productive. To truly change the system, we must realize it is truly flawed, and then work towards that effect. To save capitalism from the ravages of these bubbles requires a systematic re-think, or an acknowledgement that they are the price to pay for prosperity.

Bubbles are an inherent part of the markets, and only with systematic regulation, can the effects of such be somewhat mitigated, if not outright avoided. The bubbles themselves are inevitable in market systems---only our short sense of financial history allows us to think otherwise. 2008 could be seen in 1929. Greece could be seen in Argentina, which could be seen in the Asian Financial Crisis which could be seen in Mexico in the 1980s, and if one were to look far enough, in the New World colonies of Louisiana. Investment in poorer, developing nations with tantalizing rewards going wrong seems to be a common theme in international finance.

http://en.wikipedia.org/wiki/Mississippi_Company

Do we have the fortitude to acknowledge that our totem may be flawed? Can we work towards regulation that would help rein in the very worst of speculative excess---outlawing naked credit default swaps, or scraping the issuer pays system---or are we just going to go back to the whole fundamental doctrine of "see no evil, hear no evil" in the flawed market system, and let free-marketers tell a whole generation that there is nothing wrong with the markets themselves?

Keynes quote is from his General Theory. Galbraith's quotes are from his "Short History of Financial Euphoria", something I recommended anyone interested in these sort of things should read.