The real issues is that some financial institutions created a product that bypassed the regular failsafe mechanics... they dumped bad debts into new papers which they marketed safe... the real problem was misinformed market, which then made bad decisions. This is more of a criminal/fraudulent act and it should be viewed as that. Do you see every neighbor as a thief if one of them steals from you?
That isn't really accurate, the 'bad debts' in terms of sub prime were absolutely known and designed to be 'bad debts', and it was known that derivatives were based on them.
The big issues were that banks- and more pertinently the ratings agencies that were supposed to monitor them that provided the independent label of them being safe- thought they had a golden goose to get money from a new market and turn a 3% roi into a 10% one, and that there were no real consequences for them when it turned out the goose had died. People still listen to Moodys, S&P etc as if they know anything when they blithely labelled derivatives as AAA and the banks- in general- got both a bail out and maintenance of their special status.
The problem is not with fraud or criminal behaviour, the problem is that these people were morons. They believed they had developed the perfect system when in reality it was just another pyramid scheme, and have had no effective consequences for their actions. Not even a decade later and you already have people buying houses in places like London on credit- with no intention at all of anyone actually living in them- just to sell to some other person functioning on credit six months later. It's moronic, irresponsible and traps people like the perfectly innocent single house owner who ends up with negative equity when the bubble bursts, as well as all the people who cannot afford accommodation at all, and the taxpayer who ends up with their economy in recession when the bubble inevitably bursts. But it looks good in a narrow economic sense in the short term, so nobody wants to fix it.
Welfare is the threat to economics... please explain, why every single country, that is a walfare state (aside of Norway) has very high national debt and can't handle it?
We've got a far bigger welfare state than the US, but our debt: gdp ratio is way lower and would be even more so if we hadn't had a city flattened by an earthquake. And it ain't just Norway with their oil cash, all the Scandics are in the same situation as we and Australia are, far lower debt levels despite more welfare.
Welfare is not a large contributor to economic malaise because welfare gets spent, it goes into circulation in the wider economy. Indeed, cutting welfare usually intensifies recessions because it removes money that is being circulated which hits businesses leading to more layoffs, while people with excess cash tend to sit on it and cut spending in recessions those on low wages cannot cut spending unless forced.
The problem with the high debt European countries and the US is the same as with the banks- they've been run by morons, whether left or right wing. Ideological morons, short term vision morons, political benefit before actual benefit morons; people who think that the good times will last forever so never make hard decisions to actually pay down debt when they can. And that is irrespective of left/ right divide; our left party reduced debt massively last time it as in power, our right wing one runs massive deficits, cut taxes for the rich and raised GST during a downturn which actually turned it into a depression etc. Our left wing party wants to raise the retirement age (which is essential in the medium term, along with a capital gains tax to stop looney tunes housing speculation that should have come in yesterday) but the right wing one wants to keep it where it is. And you have plenty of right wing US politicians handing out massive corporate welfare packages- overpriced military contracts, agricultural subsidies that favour massive conglomerates etc etc.