In nature life is often described as being in a continual struggle for for dominance, with some degree of dynamic equilibrium between various species holding everything in an uneasy, but sustainable, balance. However if some event allows one group to gain dominance over another, then fairly rapidly the dynamic equilibrium can get dramatically out of balance causing cycles of boom and bust.

In many ways large financial and political systems mirror this effect. While there is a dynamic equilibrium amongst the various parts of government and works and business hours, etc, then things can be sustainable long term, if rather uneasy with no one especially happy. But if unions gain the upper hand (as appears to have happened in California state government; via unixronin with some interesting comments showing another entity having the upperhand), or financial institutions gain the upper hand (as happened with Wall Street finance firms in the 1990s and 2000s), especially to the degree that they completely leave their original niche in the ecosystem, then a cycle of boom and bust seems virtually assured. (If the government retains the upper hand, above all else, you end up with a military-police state, which also seems undesirable.)

In the USA financial system, the Glass-Steagall Act, enacted after the Great Depression to keep parts of the financial system in check, balanced against each other, appears to have worked quite successfully to help maintain the dynamic equilibrium. Right up to the point where the Graham-Leach-Biley Act repealed the last of the important provisions, as campaigned for by the very financial organisations being regulated -- thus setting the financial institutions free to gain more dominance. It took a decade for the true impact of that to become painfully obvious, but it appears to be the fateful flap of the butterfly's wings.

In political economic theory the government is supposed to be the balance to free market economics seeking short term gains over everything else. But it unfortunately appears almost inevitable that a democratic government will be captured by those same free market actors as a natural progression of doing what they do, and struggling for the upper hand. Absent some other balancing force, it appears the cycle of booms and busts is doomed to continue. Perhaps we can find some way to slow down the cycling and reduce the dramatic lows of the busts -- at the expense of reducing the dramatic euphoria of the booms.

"[D]emocracy is the worst form of government except all those other forms that have been tried from time to time." -- Winston Churchill

(A benevolent dictatorship would be better -- the problem has always been in retaining the benevolent part...)

ETA: On a not completely unrelated topic, a supposed description of how Apple finds leaks (it looks rather over-dramatised to me, but Apple is renowned for controlling information about new products prior to their official launch -- and trying to track down any leaks). Via unixronin post where the comments are pretty dubious about the reality of what is described.

ETA, 2010-04-25: Also somewhat related: With SEC charges, Goldman Sachs reputation is tarnished observing that the change from partnership to public company brings much more short term views, and a rebuttal saying this may have been true of other Wall Stree firms, but not really Goldman Sachs -- particularly given Goldman Sachs part in the 1929 financial issues, including Shenandoah Corporation. And a little history -- from 1936 -- of Goldman Sachs. Finally rebuttal of some myths about the current Goldman Sachs case.

ETA, 2010-04-26: Financial Cryptography observes that with securitization it is no longer banking since you're no longer borrowing at call and lending at term and managing the risk of the difference -- the loans are all securitized, and their risk is someone else's problem.