Dear Eric
If you want to do the astrology, I think this whole financial meltdown was born in (around) 1983 when the Interest Rate Swap Market started and all the rules changed.
The 1981 IBM PC. So familiar; so old. So confusing if you still had a quill pen and blotter. Photo stolen from the personal collection of Bill Gates.
This is a market where you hold onto the capital or bond you borrow or issue and swap the interest payments with someone else.
You had to find someone with an opposite view. If you thought long term rates would be higher than short term rates then you received the fixed long term and paid the floating short term. If you thought short term rates would rise you did the opposite.
The interest payments are considered off balance sheet so you are effectively hiding what interest you are paying.
They also opened the global market so that no-one would know where your responsibilities lay. This became more complicated when two currencies became involved and restrictions were lifted.
These deals required a new breed of banker, one who knew how to manipulate through the computer. This divorced those who had developed an awareness for risk over many years. These people also found it very difficult to admit that they didn’t understand the new products… a process which has continued to the present day.
Computers allowed the new products to get more and more complicated and the understanding of what the dealer was actually doing moved from fact to a kind of fantasy. The amounts involved in these transactions (although nominal) soon outstripped the amount of money in the entire world (since the money actually moving was only interest).