The historic meeting described below took place in Washington D.C. on Thursday night, September 18, 2008.
WASHINGTON — It was a room full of people who rarely hold their tongues. But as the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first. Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi. “When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.
As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”
“Wow.” And after that, “How did we get here?” If you can get by the instinct to question motives, political and otherwise, this describes a situation that would be about as bad as it could get. The fact that both Republicans and Democrats can agree on its severity probably dispenses with the question of motive, but I guess we will all wonder whom we were really bailing out.
But, again, how did this happen? We wrote a piece a few months ago about the sub-prime mortgage debacle that we thought was moderately humorous. “Who Are the Brains Behind the Housing Crisis” Basically, we were asking how all of this Ivy League brainpower on Wall Street could screw something up so badly.
But this is not funny. And it was no accident. And “stupid” doesn’t begin to describe the behavior that has come to light since we wrote that article in March of 2008. “Avarice” “betrayal” and “criminal” come closer. What we now realize, with the benefit of a longer look into the open wound, is that saying that the mortgage brokers, investment bankers and government regulators who committed or overlooked these acts, were merely negligent would be like saying that Adolph Hitler was simply misguided.
These people are a lot smarter than my prior post gave them credit for. They knew exactly what they were doing without worrying about the consequences. They extended credit to people who they knew would never be able to pay it back. And worse, they didn’t care if they paid it back. They figured that they had an appreciating asset, a home, securing the over leveraged debt.
But they didn’t care for another, better, reason—they quickly sold the debt to investment bankers who packaged it with other bad paper and put it into mutual funds and other, more sophisticated instruments. These were sold too often to unsophisticated investors--with promises of exceptional returns.
But those investment bankers held on to some of the obligation for this investment paper and that’s what got the biggies in the end—Bear Stearns; Lehman Brothers; Merrill Lynch, and maybe the rest of the big independent investment brokerage houses. I don’t feel sorry for them. I don’t feel sorry for their shareholders. I don’t feel sorry for anyone connected with them. They were taking astronomical compensation packages, and for what? For unleashing a maelstrom of catastrophic proportions upon our economy? No, I don’t feel sorry for them. I feel sorry for the American taxpayer who is underwriting the remedy for what will come to be known as an act of piracy of historic proportions.
This was nothing short of an outright assault on our economic system by people who knew better. Well-educated, very skilled, highly intelligent people with years of experience, but with the moral fiber of a box of Cheerios. They knew better, but greed got in the way. Unthinkably large sums of cash got in the way.
And these people are our “best and brightest?” That’s the tragedy—they are the best and brightest and Wall Street was the siren call. Not to teaching, not to the military, not to non-profits, not to public service of any kind. They responded to the siren call of the dollar, pure and simple. We have truly lost our way when our very best are blinded by such self-interest that they cannot see the dismal folly of their own cleverness.
So now our government is going to accept responsibility for probably the biggest pooch screwing in the history of the world. Trillions of dollars. Maybe it all comes out OK in the end. Maybe not. But you can bet that a lot of small investors and lots of ordinary Americans who have pensions, 401k plans, and jobs which depend on a stable economy are going to take a serious beating before this is over. As I said, “stupid” doesn’t begin to describe this.
 Herszenhorn, David, “Congressional Leaders Stunned by Warnings,” The New York Times, September 19, 2008.
 CondoIssues.com, March 2, 2008.