James Galbraith (son of J K Galbraith) has written for Bloomberg:

This is the first full-fledged credit collapse and debt deflation since 1930, bringing with it a violent economic decline and a surge of unemployment.

How did it happen? For half a decade, a toxic stew of abusive and explosive mortgages, subprime securitization and complicit ratings companies was allowed to simmer, piling leverage on leverage, while credit default swaps spread risk until risk no longer could be traced.

This was market failure. But it happened because of a deep failure of the state. The government has the power to prevent such things. But the state abandoned its post. Marching under the banner of free markets, the government turned regulation over to agents of a predator class. Thus the unchecked growth of derivatives, tax havens, regulatory arbitrage and the carry trades. Thus Bernard Madoff, undetected by the Securities and Exchange Commission.

Good to see he's still a chip off the old block.

He's also right: the state does have the power to stop all these things, tax havens included. As he notes:

The inauguration of President-elect Barack Obama offers hope that these matters have been understood. Yet it wouldn't be wise to assume this. The American public, whose common sense and good judgment rejected the predator state in the elections of 2008, needs to remain engaged, informed and active on all fronts.

That's the challenge for all of us in 2009. 2008 saw the economy crash. In 2009 it will need to be rebooted - but with with a new version of the operating system that excludes the risk from lax regualtion, derivatives, tax havens, regulatory arbitrage and the carry trades.