This is a guest post by Pedro Prieto from Madrid, Spain. He is the head of ASPO-Spain and organized the ASPO 7 conference in Barcelona last year. See also follow up post, regarding inflation adjustment to parameters.

When the economy started to fade last year, many attributed the cause to subprime lending.

Others put together very successful, hilarious stories, explaining that the ultimate reason for this financial crisis was the NINJA policies of banks (credits granted to people with No Jobs, No Income and No Assets). Many of these stories were uploaded to Youtube.

Neither subprime lending, nor NINJA policies, nor any financial media is able to explain why banks around the world, which had been for decades very cautious in granting a credit without solid collateral, suddenly started to grant loans to insolvent people; or why the strict financial regulatory and supervisory entities started to look the other way.

This is an attempt to offer a different perspective.