The Banking Crisis: Should We Be Angry at Wall Street or the U.S. Government?

60 Minutes aired an exposé on Sunday, March 14, 2010 that took the form of an interview with an author who has written about the banking crisis debacle. The author is Michael Lewis, and the name of his book is The Big Short: Inside the Doomsday Machine. The book is a carefully reported record of the global financial meltdown that resulted from the bundling together of mortgages (many of them grossly overvalued and doomed to fail) by bankers and selling them to insurance companies. 1. In most cases, the banks that bundled and sold the mortgages did not understand that they were overvalued. 2. In essentially all cases, the insurance companies who bought them did not understand that they were overvalued. 3. The rating agencies charged with the responsibility of evaluating and assigning credit risks failed to do so. (The rating agencies are paid by the companies they are rating.) 4. Government oversight regulations of banks and insurance companies have been seriously eroding, especially over the past decade. 5. Nothing that has happened in terms of a response to the failure has changed the Wall Street bonus culture. 6. One person, Michael Burry, a disabled MD working on his own, figured out that the credit worthiness of the mortgages was toxic and bought insurance on them that netted him $750,000,000 in 2007 alone. He was reading the same information that the Wall Street bankers had available but either did not read or did not understand. For his part, Lewis stated, “The incentives for people on Wall Street got so screwed up, that people who worked there became blinded to their own long term interests. And because the short term interests were so overpowering. And so they behaved in ways that were antithetical to their own long term interests.” Aside from Michael Burry, the lone investor, and Michael Lewis, the assiduous author, there are essentially no other Americans who profited from the great debacle. Will Wall Street’s greed have an adverse effect on the workplace? Should the federal government play a role in this situation? If so, what role?