As we all know, the origin of the current financial crisis was the subprime mortgage meltdown in the United States.

To be more precise, it originated in a financial system generating paper assets whose value depended on the price of housing. It assumed that the price of homes would always rise and, at the very least, if the price fluctuated the value of the paper could still be determined. Neither proved to be true. The price of housing declined and, worse, the value of the paper assets became indeterminate. This placed the entire American financial system in a state of gridlock and the crisis spilled over into Europe, where many financial institutions had purchased the paper as well.

From the standpoint of economics, this was essentially a financial crisis: who made or lost money and how much. From the standpoint of the political economy, it raised a different question: the legitimacy of the financial elite.

Think of a national system as a series of subsystems — political, economic, military and so on. Then think of the economic system as being divisible into subsystems also — various corporate verticals (manufacturing, real estate, etc.) with their own elites, with one of the verticals being the financial system.

Obviously, this oversimplifies the situation, but I’m doing that to make a point. One of the systems, the financial system, failed, and this failure was due to decisions made by the financial elite. This created a massive political problem centered not so much on confidence in any particular financial instrument but on the competence and honesty of the financial elite itself.

A sense emerged that the financial elite was either stupid or dishonest or both. The idea was that the financial elite had violated all principles of fiduciary, social and moral responsibility in seeking its own personal gain at the expense of society as a whole.

Fair or not, this perception created a massive political crisis. This was the true systemic crisis, compared to which the crisis of the financial institutions was trivial. The question has become whether our political system is capable, not merely of fixing the crisis, but also of holding the perpetrators responsible. Alternatively, if the financial crisis did not involve criminality, how could the political system not have created laws to render such actions criminal?

Was the political elite in collusion with the financial elite? Perhaps.

The result is a crisis of confidence in the financial system and a crisis of confidence in the political system. The U.S. government’s actions in September 2008 were designed first to deal with the failures of the financial system. Many expected this would be followed by dealing with the failures of the financial elite, but this is perceived not to have happened. Indeed, the perception is that having spent large sums of money to stabilize the financial system, the political elite allowed the financial elite to manage the system to its benefit.

This generated the second crisis — the crisis of the political elite. The Tea Party movement emerged in part as critics of the political elite, focusing on the measures taken to stabilize the system and arguing that it had created a new financial crisis, this time in excessive sovereign debt.

While the Tea Party’s perception was extreme, the idea was that the political elite had solved the financial problem both by generating massive debt and by accumulating excessive state power. Its argument was and is that the political elite used the financial crisis to dramatically increase the power of the state (health care reform was the poster child for this) while mismanaging the financial system through excessive sovereign debt.

It remains to be seen whether the political elite will find the means to cure the ills that exist. I’m inclined to think that those in a leadership role have neither the will nor the leadership ability to face down all the stakeholders who have a vested interest in the status quo. But to simply say “vote the bums out” doesn’t solve the problem. The replacements we put in place have to knowledgeable, immune to the lobbyists for the financial elite, able to see both sides of every question and act in the interest of ALL OF US. They have to want to serve ALL OF US, not just a narrow base, and have an understanding of economics.

So to whom do we turn for leadership? It’s a vexing question.