Curbing Wall St.'s excesses
A few common human characteristics were shared by the Wall Street masters of the universe who packaged exotic financial instruments and the Main Street homeowners who purchased more house than they could afford: the insatiable lust for more, for newer, shinier, bigger, and ostensibly better. The consequences are in evidence in the economy, edging back from the brink but still enfeebled by the housing bubble.
A few common human characteristics were shared by the Wall Street masters of the universe who packaged exotic financial instruments and the Main Street homeowners who purchased more house than they could afford: the insatiable lust for more, for newer, shinier, bigger, and ostensibly better. The consequences are in evidence in the economy, edging back from the brink but still enfeebled by the housing bubble.
The homeowners who allowed their dreams to swallow up their common sense are paying for their mistakes with sullied credit and/or massive debt. From California and Florida, from bungalows to mini-mansions, houses are in foreclosure and neighborhoods are gloomy with abandonment.
But while those irresponsible home buyers are reaping what they've sown, Wall Street's smart guys have largely escaped the consequences of their reckless behavior. Some of them are now quite rich because of the wheeling and dealing that brought the banking system to the verge of collapse.
But they're incredibly arrogant about the mess they created - refusing to accept any responsibility. Their "apologies" are textbook exercises in finger-pointing and blame-avoidance: Mistakes were made, but, apparently, not by any of them.
The budgetary recklessness of individual homeowners would not have frozen the banking system and rippled throughout the globe.
A mess of global proportions required things such as synthetic collateralized debt obligations. What are they? Well, suffice it to say that some of the Wall Street geniuses didn't really understand them. But they understood they could collect huge and immediate payouts by packaging them as investments.
(Oh, let's get this out of the way: The banking meltdown wasn't caused by the Community Reinvestment Act, passed in 1976 to prohibit the widespread practice of withholding credit from entire neighborhoods, usually with less-affluent households. Most of the banks regulated by the CRA didn't get into trouble with their loans.)
It's no accident that the country avoided massive financial disasters from the Great Depression until now. But by the 1990s, government rules and regulations had come to seem so antiquated, so 20th century. In a modern economy, critics argued, federal regulations just slowed things down. In a bipartisan breakdown of common sense, Congress decided the rules were no longer necessary.
Obviously, rules are necessary. As President Obama said recently, Wall Street reform would prevent "a situation where people are allowed to take wild risks, and all the downsides are socialized even as the profits are privatized."
Just as there will always be home buyers tempted by the vacation place they can't really afford, there will always be bankers tempted to earn a sweet million on an obscure deal with an immediate payout. In other words, human frailty will always be a part of the human condition. Government regulations curb the excesses.
