-The US emerged from the Great Depression with a tightly regulated financial system which kept banking safe and boring for about 40 years.

-This began to change in the 1970s and 1980s as the political mood turned against "big government" largely as a result of the stagflation of the 1970s – which was not a result of "big government" but had its roots in temporary events like the oil price shock and disappointing crop yields which got magnified through wage-price indexation.

-Constant policy shifts under Nixon, Ford and Carter led to public disillusionment with government and proved to be a fertile ground for the antigovernment messages of Milton Friedman and Ronald Reagan.

-Reagan convinced a credulous public that the " government had become the principal obstacle to their personal fulfilment" and made excessive greed and individualism acceptable, and even lauded, in the American psyche.

-While Friedman made important contributions to the economic field, he often shoehorned real-life data to fit his views and made "overly simple assertions of free market claims". He erroneously believed that free markets were a solution to virtually every problem and even held the government responsible for the Great Depression (contrary to what the data says).

-Reagan and Friedman fanned the culture of "greedism– that unchecked self-interest furthers the common good".

-Walter Wriston, who ran Citibank from the 1960s until the 1980s, "lived a free market charade" arguing against the bailouts of Chyrsler (1978) and Continental Illinois (1984) while having his own bank saved by the government multiple times (sounds familiar?)

-Wriston was responsible for the first major step in banking deregulation with the introduction of negotiable CDs in 1961 which did away with the legal limits on deposits.

-Wriston also a played prominent role in the Latin American lending crisis of the 1980s and made the famous quote "Countries don't go bust" (which ranks with the Chuck Prince quote on "keep dancing until the music stops" as an all-time great!).

-The Latin American lending crisis has much in common with the sub-prime crisis decades later – i.e. a notion that all debtor nations (or nation-wide house prices) could not simultaneously have a funding problem (or suffer from precipitous price drops).

-US and European banks were bailed-out by the government with a programme heralded as aid to debtor nations but was in reality a bailout of the banks as the loans were made to the debtor nations to allow them to repay the banks, at the cost of imposing harsh austerity measures on the debtor nations which resulted in a "lost decade" for Latin America (sounds familiar?).

-Following the Latin American crisis was the savings and loan crisis of the early nineties, which had a greater direct cost to taxpayers than even the current crisis, and which was dealt with by further dismantling regulations left over from the Depression era.

-Then came the last two great bubbles – the technology bubble of the 1990s and the recent housing bubble, where Wall Street corruption played a crucial role and involved a colourful cast of characters: Sandy Weill, Jack Grubman (Solomon tech analyst), Frank Quattrone (Morgan Stanley tech banker), Ken Lay (Enron), Angelo Mozilo (Countrywide), Jimmy Caine (Bear Stearns) , Dick Fuld (Lehman), Stan O'Neal (Merrill Lynch) and Chuck Prince (Citibank).

-Sandy Weill was single-handedly responsible for dismantling the Glass-Steagal Act by proposing the merger between Solomon Smith Barney and Citibank, and actually getting the law changed to retroactively approve the merger.

-Abdication of regulatory oversight has been behind these cycles of financial overreach, crisis, bailout and lessons unlearnt. The centrepiece of this saga has been Alan Greenspan whose refusal to rein in the housing bubble, despite repeated warnings about an impending catastrophe, ranks highest in the list of ignominious acts. Greenspan, like Friedman and Reagan, firmly believed in "greedism" as an ethos. 

-Why did this all happen? There are likely to be deeper forces at work than just a series of contingent event starting with the stagflation of the 1970s and roles played by the characters involved. The role of money in politics? A white backlash against the civil rights movement which transformed American politics? – a topic for another book. 

-Despite the claims of some academics (primarily in business schools), the vast amount of capital channelled through Wall Street has not improved America's productive capacity by "efficiently allocating capital to its best use" and has in fact diminished its productive capacity through financial chicanery, massive bonus payouts and creating asset bubbles.

-The main lesson from these cycles , that unregulated greed, especially in the financial sector, is counterproductive for a nation's prosperity is still sadly unlearnt and we are still being told that "greed is good".

A remarkable narrative and a scathing criticism of the "greed is good" ethos which prevails today as a detriment against social and economical progress. A backlash against this culture is inevitable, and as noted by the socio-economist Neil Howe in book 'The Fourth Turning" the process is well underway. The pendulum swung to one extreme over the last few decades, ushering a radical shift in ideologies and beliefs in its wake, and will eventually swing to the other extreme and bring its own set of ideologies and beliefs. That is just how life and nature works-for better or for worse!

It was an eventful week in financial markets, with Greece voting in an austerity package which is likely to be followed by a EU vote this Sunday in favour of a funding package which would allow Greece breathing space until 2015. While the bonds are up in prices, they continue to provide an attractive yield and potential for further price appreciation as this issue gradually recedes into the background. As noted above, Latin America endured a decade of austerity to dig itself out of the hole and there is no reason that Greece, and other peripherals, cannot endure several more years of austerity to improve their balance sheets.

Select EM stock markets like Greater China, India, Brazil and Russia continue to provide an attractive entry level to add to the core EM assets position as the focus of these governments shifts from containing inflation to stimulating growth in the second half of the year. However, housing bubbles in some of these countries is likely to be contained as the backlash against unaffordable housing gains traction. I witnessed an unprecedented event in Hong Kong last night, with a late night silent sit-in by 218,000 people in central Hong Kong (which totally disrupted traffic and brought out scores of police vans!) protesting against government policies and unaffordable property prices. While HK/China property prices are unlikely to undergo a steep correction in the next few years (with China's change of regime taking place in 2012), they are likely to depreciate in real terms until a Renminbi revaluation (combined with a HK$ repeg) event takes place. The main beneficiary of this policy of containing housing prices is likely to be the stock market, which will benefit from the diversion of liquidity flows.