El Opinador Compulsivo

Alvaro Vargas Llosa, sobre la crisis financiera en Estados Unidos:

In recent years, many people forgot that in order to consume and invest, one needs to save. This elementary truth was lost as millions of people responded to perverse government-generated incentives by living beyond their means. What we are seeing today is nothing less than the inevitable price of behaving irresponsibly.

As is often the case with a financial crisis, the original sin behind the current turmoil has to do with government policy. Since 2001, the Federal Reserve has kept interest rates absurdly low in order to prevent a recession. Between 2003 and 2004 the rate at which the Fed allowed banks to lend to each other overnight was 1 percent! This convinced people that there was abundant money for anyone who wanted it. Easy money begets extravagance on the part of those who lend and on the part of those who borrow. So financial institutions came up with irresistible offers, including mortgages that required no down payment and adjustable-rate loans that charged low interest in the early years.

Borrowers went wild, often taking out second mortgages or multiple consumer loans simply because they could.

The theory was that the days of saving were over. The "new economy" was supposed to rest on the creation of asset value as reflected, for instance, in the skyrocketing price of houses. In such a context, financial institutions came up with slick instruments by converting debt into securities. Those sophisticated instruments passed from one hand to another in a trading dynamic that was supposed to allocate risk efficiently. In fact, because the origin of these securities was in many cases bad debt, the whirlwind of security trading concealed the high risk involved.