Dr-Moore-Finance

It is not at all a stupid question (my co-authors and I have written a couple of papers on this and there is a sizeable historical and theological literature).

According to a strict reading, any exaction of a sum above the principal was usury. Over time, this was relaxed to allow the charging of moderate interest (5-10% pa).

In any case, medieval merchants were skilled at hiding interest charges - which could be described as free gifts from the borrower, or the initial debt contract might specify a higher sum than was actually received. The most sophisticated method involved foreign exchange transactions.

At some point in the future, there will be another financial crisis (a bold prediction) but it will probably not be a repeat of 2007. As they say in the movie "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." - instead we will probably find a brand new way to cause a crash.

You can short a stock using a brokerage account (but I would not advise it - there is no limit to the amount of money that you could lose on a trade).

It is more difficult to acquire Credit Default Swaps but I think there are some Exchange Traded Funds (ETFs) composed of CDS - again, I would not advise messing around with this sort of instrument.

None of this is investment advice!

Well, the 'heroes' of the Big Short got some of it. Most of the big banks did not go bankrupt - Lehman was the only one that the government allowed to fail and the consequences were so severe that everyone else was bailed out. Even at Lehman, although the top executives lost their stock holdings when it failed, research by Lucien Bebchuk has found that they received about $1 billion in bonuses and equity sales during the bubble. In another sense, the money was never really there in the first place - something that J.K. Galbraith referred to as the 'bezzle'. It only existed on paper and the real beneficiaries were those who received bonuses, fees and commissions for facilitating the 'creation' of this paper wealth. So relatively few people profited from the crisis per se but lots of people made money during the bubble before it popped.

It is possible that the rate of interest that the US owes on its debts will drop below the growth rate of the economy. This need not be an issue, it simply means that the government would either have to run a primary surplus (increase taxes) or borrow more to meet those payments (which could lead to a debt spiral).

Obviously, that's not good for future taxpayers!

On the other hand, with the very low interest rates on government debt at the moment, it might be a good time to borrow to fund infrastructure investments/stimulate the economy. Economic growth will then help to reduce the debt:GDP ratio.