Mervyn King, formerly of the Bank of England, in "The End of Alchemy" has a great parable of an island populated by fishermen. It starts with a pretty basic need of financing the nets and boats to do the fishing, where the lender then gets slowly repaid with the fish caught.
At some point a finance person steps in and introduces a credit lending facility, which overall is a good thing for the health of the economy. Then, in decision to not take on too much risk, the said finance person offloads the loans in a securitized fashion to other wealthy islanders who then benefit from fishing booms and receive below average returns in years that are dry.
Then another finance person figures out the futures contracts, which act as insurance to fishermen and guarantee a reasonable price even at times of market over-supply.
At some point trading the loan securities and fishing future contracts starts paying more than humble fishing, which means that the best and brightest switch into finance, creating a stigma for fishing as less desirable occupation for under-achievers. Majority of island's GDP is now comprised of fishing-related loans and futures, with fishing itself occupying a relatively small niche.
This, of course, collapses at some point, but the problem is that it's hard to point out that one step that's completely irrational and bonkers - everything created by finance industry has found some demand among fishermen and simplified their lives.
At some point a finance person steps in and introduces a credit lending facility, which overall is a good thing for the health of the economy. Then, in decision to not take on too much risk, the said finance person offloads the loans in a securitized fashion to other wealthy islanders who then benefit from fishing booms and receive below average returns in years that are dry.
Then another finance person figures out the futures contracts, which act as insurance to fishermen and guarantee a reasonable price even at times of market over-supply.
At some point trading the loan securities and fishing future contracts starts paying more than humble fishing, which means that the best and brightest switch into finance, creating a stigma for fishing as less desirable occupation for under-achievers. Majority of island's GDP is now comprised of fishing-related loans and futures, with fishing itself occupying a relatively small niche.
This, of course, collapses at some point, but the problem is that it's hard to point out that one step that's completely irrational and bonkers - everything created by finance industry has found some demand among fishermen and simplified their lives.