"Where the Crisis Came From"

After Almost a Year, The Fog Lifts

Maybe it's just me, but it certainly seems as though, almost one year after the financial system's September, '08 "heart attack," some clarity and consensus are emerging about exactly what happened, and why.

If you've been on a desert island, read Robert Wilmer's excellent "Where the Crisis Came From" (Washington Post; 7/27/09). Consider this wonderful synopsis:

Wall Street created, originated and sold an alphabet soup of derivative securities, and it was such synthetic instruments -- not traditional mortgage loans, small-business loans or other standard lending originated by banks -- that unleashed a flood of credit, created a vast excess of housing, weakened the capital structure of the banking industry and undermined popular confidence in banks.

Like a slalom skier expertly hitting gate after gate, Wilmer gets every key fact about the financial crisis right -- until the end.

After detailing all the ways securitized debt and its underwriters have devoured the financial system --and co-opted regulators -- the last 20 years, Wilmer essentially appeals to Wall Street's sense of decency to correct things:

Corporate leaders have an obligation to set the right tone -- a moral tone -- lest public confidence in our private enterprise system erode.

Unnh-unh. Great analysis, wrong prescription.

People who have amassed the kind of power and wealth that Wall Street -- and specifically, Goldman Sachs -- has don't typically relinquish it voluntarily.

There's a saying, "power can't be given, it must be taken."

To that, I'd propose a corollary: ceded power isn't voluntarily returned, it must be taken back."

P.S.: it's not nearly as sensational, but Joe Hagan's cover story in this week's New York magazine, "Is Goldman Sachs Evil?," covers much the same ground -- and draws similar conclusions -- that Matt Taibbi does in his now infamous Rolling Stone piece.