The Flaw: money-grabbing and misery in modern America

I have finally watched the 2011 documentary The Flaw. Pulling together interviews with a range of academics and experts, as well as people involved in and affected by the sub-prime mortgage fiasco, the film works as a highly watchable insight - albeit a polemical one - into the causes and consequences of the financial crisis in America.

A few ideas from the film stood out for me:

• Asset markets are naturally prone to bubbles because they fail to obey the normal rules of supply and demand. People tend to buy more of an asset - equities, property, etc - as its price rises, driven by the belief that the price will continue to rise and that they will therefore make a profit when they sell the asset. This fact implies that stock market and property bubbles are pretty much inevitable in market capitalism.

• Asset bubbles and income inequality are intrinsically linked. As assets inflate in price, wealthier people have the spare cash to invest in assets, so they tend to be the ones to profit most from asset price increases.

• Income inequality in turn inflates asset market bubbles and damages the real economy, since the very wealthy spend proportionately less of their income, compared to the average citizen, on real goods and services and proportionately more on assets.

• Over the last 30 years, banks have, as we all know, put more and more of their resources into financial instruments based around personal debt (notably mortgages and credit card debt, and derivatives thereof). This is because these instruments offer a quick return. In other words, bankers have - surprise, surprise - been trying to maximise their profits. The consequence, however, is that banks have come to see the real economy - i.e. factories, small businesses, infrastructure, etc - as a less attractive destination for their capital.

This last point helps to explain not only the untenable rise in obscure financial engineering that led to the financial crisis itself, but also the drop-off in investment in the real economy and the decline in manufacturing. This link holds true, I suspect, not only for the US, which is very much the focus of The Flaw, but also for the UK.

You have to wonder whether the catastrophic events of recent years will convince banks to shift their priorities back from obscure financial instruments to lending in the real economy. Sadly the evidence from lending figures so far suggests that this isn't happening. And herein lies a reason why we all need the bonus culture to be dismantled for good. So long as bankers are motivated to seek out fast profits, they will do so in the way they know best, i.e. constructing and trading credit default swaps and the like. Thus there will be less money available to support businesses and projects that actually employ people in a sustainable way and create wealth for the broader population.

My one cheerful thought to come out of the film was a realisation that, in the UK at least, things could have been worse. The Flaw shows how the bursting of the US house price bubble had miserable consequences for individual home owners burdened with mortgages that they never should have been granted. Many now owe considerably more than their houses are worth. This hasn't happened to the same degree here in the UK because house prices have not crashed as dramatically as they have in the US, not to mention Ireland, Spain and so on. For this scrap of good fortune, we in the UK should, for now, be grateful.

Memories of The Games

It's hard to argue with the widespread view that the London 2012 Olympics and Paralympics have been a resounding success. We've had so many memorable performances, an even better than expected showing from the home team and very few administrative cock-ups or other embarrassments for the organisers: cue a justified feeling of a job well done among all those involved.

For me, a couple of memories stand out. Firstly, there were the crowds and the atmosphere at the two events we attended. The number of people up Box Hill for the men's cycling Road Race was amazing. It's not an easy place to get to, especially when all the surrounding roads are shut for the day. But the great British public turned out in force and thoroughly enjoyed themselves. Even the police joined in the relaxed, celebratory spirit of things, with some of the boys in blue even high-fiving the crowds lining the route from their passing motorbikes.

Similarly at the Paralympics, the main stadium was packed and the support never anything but totally wholehearted. As at the Road Race, the loudest cheers were reserved not just for the winners but for those doing their very best at the back of the field. An Iranian cyclist who trailed the peleton by a bigger and bigger gap on each of the nine laps of Box Hill received a bigger and bigger dose of vocal support each time he passed us. A runner from Djibouti who took over 11 minutes to complete the 1500 metres brought the Olympic Stadium to its feet in applause.

Maybe there is something in the British psyche that makes us love the underdog, or maybe it's just human nature. Either way, it was a warm and rather moving way to show that doing your best is really all you can do, that winning gold isn't everything and that, despite the fervour for Team GB, we welcome all comers to these shores.

One unmistakably British ingredient in the Olympic mix was the Opening Ceremony. My expectations of it were so low, but what an extraordinary thing it was. Thoughtful and thought-provoking, radical and vibrant, I loved it. Beyond the sheer spectacle and ingenuity of it, the show won me over with its focus on some the things that make Britain what it is: the pioneering resourcefulness that kick started the industrial revolution, our singular creative output, our sense of humour, even our national health service.

If the opening ceremony opened a few people's eyes to some of the things that are uniquely British in our past and our present - things that we should treasure or in some cases try to rediscover - then it was a few million quid well spent. Indeed I hope that a bit more national self-confidence will be one positive legacy of The Games. If nothing else, surely we've shown that we can design, build and run a hugely complex event with great panache. And surely the oft-voiced, defeatist assumption that stuff in Britain tends to go wrong now sounds more than a little hollow.