There are several reasons of the present economic crisis. In essence, the most important innate reason is the development model of Europe's and America's low savings and high consumption. This can be summed up with the notion of debt. For the both mentioned factors, low savings and high consumption, unavoidably result into a massive borrowing by which people, firms and governments incur in heavy debts. They do that in order to face expenses which in most cases are far from being necessary.

The roots of such a state of affairs are found both in the intellectual and the moral sphere. The intellectual defect amounts to recklessnes, that is the lack of ability of calculating gains, losses and risks, and therefore too little thought is given to possible dangers.

As to the moral defect, on consumers' part it consists in reckless consumption, in excessive desire to possess more consumer goods than it is necessary and is above his real financial possibilities.

On the part of market agents, the moral defect consists in a reckless greed for maximal gains, insatiable desire to acquire more money and prestige than they deserve for their activities, and more that it is economically rational.

From the aspect of institutional mechanisms and government duties, the reason lies in the negligent supervision of finance that leads to the lack of transparency. This, in turn, results in the lack of that information which is necesary for rational decisions of market agents.

To exemplify this economic requirement for transparency, let us consider a problem concerning bank policies, illustrated by the case of banks in Poland no one of which did collapse during the present crisis.

To explain this remarkable case, let us first recall the (i) fundamental economic law of optimal allocation of resources, (ii) to focus then on capital as a resource in inter-bank borrowing, (iii) which presupposes a mutual trust, and (iv) that requires transparency in bank policies; such (v) transparency is essentially granted (vi) with the fact of being listed at stock exchange, since this (vii) involves the duty of public accounting for bank's assets and debts. Now, let us trace the chain of reasoning, starting up from item vi.

1. Bank X is listed at the stock of exchange.
2. This implies the duty of reporting on asssets and debts.
3. What results in the transparency of its activities and financial standing.
4. Owing to this, other banks are aware of X's financial situation.
5. If it proves satisfactory, other banks trust in X's financial crediblity.
6. Therefore they are ready to give X loans, if it needs them e.g. for a profitable investement.
7. Owing to such inter-bank borrowing, a portion of capital can be conveyed to a suitable place where it would contribute to economic growth.
8. Thus we have a case of fulfilling the law of reasonable allocation of resources.

All banks in Poland are subjected to supervision by a special government agency (Komisja Nadzoru finansowego), and are listed at the Warsaw Stock of Exchange. Thus they conform to the condition in item 1. This results in advantageous consequences as listed in items 2-8; they considerably contribute to the fact that Polish economy so far proved resistant to the danger of recession.

Now, to return to the problem of American and quite a number of European financial institutions, let us consider six serious malpractices which are indicated in the analysis entitled Reasons for US sub-prime crisis (Website "Capital Investment").

2. A survey of malpractices as factors of the economic crisis

• First, subprime real estate mortgage loans. This unrealistic procedure, contributed to European and American excessive and super-capacity consumption; this made many years brilliance of economy, but hided the risk of bad toxic debts.

  As for subprime loans see the article Subprime lending in Wikipedia. As for conventional mortgages, part of each month's payment goes towards paying off the principal and part goes toward interest. When banks began lending to subprime borrowers a few years ago, it seemed great. Suddenly, anyone could buy a house, even with little or no money down. But not all of those borrowers were good candidates for the loan. Their defaults helped kick off the subprime crisis.

  In an interest-only loan, or interest-only mortgage, the borrower only pays interest each month. This makes it cheaper than a conventional mortgage, in which part of each month's payment goes towards the principal and part goes towards interest. These loans had become popular because the monthly payments are lower, allowing borrowers to afford a larger home.

  Interest-only mortgages (called also exotic loans) became dangerous, especially in the down housing market. The interest rates are generally fixed for the first 1, 3 or 5 years. After that, they convert to a conventional loan, with a higher monthly payment.

  Most borrowers took on these loans because they assumed they would sell the home before the interest rates increased. In the down market, they weren't able to sell. When they couldn't afford the increased payment, many defaulted on the mortgage, and foreclosed on the home.

• Second, mortgage securitization. Huge real estate bubble gets transferred to the capital market.

  Securitization is too complicated procedure to be fully explained in this context. A sketchy explanation may start from defining mortgage note (mortgage loan). This term means a promissory note associated with a specified mortgage loan; it is a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. While the mortgage itself pledges the title to real property as security for a loan, the mortgage note states the amount of debt and the rate of interest, and obligates the borrower, who signs the note, personally responsible for repayment.

  Mortgages notes owned by banks and other lenders may be purchesed from them by organizations established for that purpose, and these transform these assets into securities which can be traded at secondary market. This generates a serious risk, since usually a purchaser at a secondary market has too little data to form his own opinion about degree of credibility of such assets, hence a risk of considerable losses. Such losses experienced by banks etc. resulted in defaults and bankruptcies.

• Third, alienation of investment banking. Investment banks are financial intermediaries, but European and American investment banks are temptated by the enormous profit of mortgage securitization transactions.

  Financial intermediaries can include banks, insurance companies, investment dealers, pension funds, etc. Alienation here means a detachment from economic reality, lack of full knowledge concerning risk of transaction because of such factors as lack of transparency.

• Fourth, High financial leverage. To stabilize the financial markets, the financial leverage should be reasonable. This term denotes use of borrowed money to increase production volume, and thus sales and earnings. It is measured as the ratio of total debt to total assets. The greater the amount of debt, the greater the financial leverage.

• Fifth, credit default swaps. These are securities which insure against default of the underlying asset. The seller of such security gets obliged to compensate the buyer in the event of loan default.

• Sixth, lack of regulation of hedge funds.

All the six factors form a chain that leads to the financial crisis.

3. A case study: some Spanish troubles and a more universal lesson

Before I present some individual cases, let me sketch a general characteristic of the type of borrowers to be exemplified with such cases. People belonging to this type may be called "confident fortune's favorites". This type includes those who have regular income, even quite large, who take credit and easily spend the received money; they behave so recklessly, since firmly believe that they will always be able to return their debts.

The following examples found in the report "Koniec fiesty" (The end of a feast) published in "Wysokie Obcasy" (High Heels), November 5, 2011.

Let us see at Spain, year 2006. Here more dwellings are being built than anywhere in Europe. Unemployment amounts to 8%, being the lowest since 30 years. People purchased dwellings in mass, the work was in abundance, who wished to work, might have worked.

However, the situation deteriorated. In 2008 black clouds approach Spain. There begin problems with returning loans, inflation becomes crazy. However, the government stubbornly avoids the word "crisis". Here are some stories of borrowers representimg the mentioned type of confident fortune's favorites.

• Some people spend enormous money for dwelling, bigger ang more luxurious than they really needed, and next they could not afford to equip their flat with a furniture. For instance, a family living in a splendid residence has become unable to buy chairs to their living room, so they watched TV using seats temporalily brought from kitchen.

• A family which earned no more 800 euro took credit jointly for house, car and Caribbean trip, thereby becoming unable even to pay interest rates, and the less the principal part of their loan.

• Some patterns of behaviour in Spain were like those having been observed previously in Argentine. There, during an economic boom, people who ate their meals at home, failing to visit every day an exquisite restaurant, and watched films at DVD at home instead of spending money for cinema, were scornfully called "noevos pobres" - new poor creatures.

• Cristina, a bank employee, sheds a light on what was going behind the scenes of such a scenario of reckless consumption. When performing her task of pricing dwellings, she experienced a very strong pression exerted on her by bosses that she should overestimate house prices. She guessed that such malpractices must have become a cause of approaching the abyss of economic collapse.

Let us dwell a while on the last report as leading to a useful lesson. Those bank advisers who overestimated house prices, forced their customers to borrow more money than it was in fact necessary, and thereby to pay grater interest rates. This must have brought a double negative effect: (i) more money at market means an increase of inflation, (ii) the greater are debts to burden bank customers, the more it becomes likely that a lot of them will not manage to pay interest rates; thus occur defaults, some of them causing the collapse of banks being creditors. And the bankruptcy of a bank creates a chain reaction of collapses in the circle of interconnected partners. Thus the infection spreads.

This is just one among the causes of failures, seen from the point of a low rank employee. More causes, up to six, were considered earlier. However, all of them reduce to one source -- excessive debts. Note that not the debts in themselves, that is, taking a loan, but a false calculation of risk becomes the source of failures. The circulation of capital due to loans is for economy as necessary as circulation of blood for our bodies. How to take advantage of this process, and avoid a dangerous excess? This is the vital question, like that of to be or not to be, for human prosperity. The lesson is to the effect that we should learn an intelligent calculation of gains, losses and risks.