The disintegration in American financial markets and the ensuing contagion to global financial markets is largely a result of lack of proper oversight and regulation, the same sort of mistakes that led to the great depression 80 years ago.

It is the tragic affliction of humanity that our collective memory spans perhaps twenty years and we are therefore condemned to continue making the same mistakes over and over again, in kaleidoscopic variation and increasing severity.

Thus did the recent republican administrations in the US beginning with Reagan in the 80’s and Thatcher’s administration in the UK unwind, undo or repeal regulations and controls on financial markets dating from the 30’s. In fact, with the advent of complex financial instruments such as derivatives and credit default swaps, regulation should have become more stringent rather than loose.

The crisis is thus imputable entirely to incompetence and stupidity – the foolish ideological belief that markets are self-correcting. The plummeting declines in the housing market can be expected to continue making waves for at least another year.

Most of the world’s biggest banks, including Citigroup and UBS have recorded hundreds of billions in asset write-downs and credit losses since the beginning of 2007, including reserves set aside for bad loans.

Authorities did not take responsibility for controlling asset bubbles and rather promoted them with cheap money. Markets such as credit-default swaps have been totally unregulated, which is a major cause of the troubles.

Credit-default swaps are contracts designed to protect investors against default and used to speculate on credit quality. The market for derivatives also grew enormously in the run-up to the crisis, as did the coverage of notional risk via credit default swaps, according to the BIS, which was formed in 1930 to monitor financial markets and regulate banks.

Total losses for banks, hedge funds, pension funds, insurance companies, and sovereign wealth funds is so far in excess of $1 trillion, the IMF said in a recent report.

And we have not yet seen the full effect of the recession into which we have slid. The aforementioned losses only relate to the decline in the value of the various financial instruments which are held by the banks and other institutions. IMF’s estimates don’t reflect possible decline in the quality of the loans that they hold. These are the eventual losses that are yet to be seen.

Uncertainty about the ability of investors and traders to meet contract obligations has created mistrust in the markets that will not clear up until a regulated delivery mechanism is put in place and there is oversight of the market.

The crisis is therefore likely to last much longer than authorities predict.

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