Melt-Down Post-Mortem

Revisiting the "'They-All-Did-It' Defense"

They all did it, right?

That is, all the big-time U.S. commercial and investment banks got swept up in the rush to cash in the housing market boom -- issuing subprime mortgages, booking origination fees, and re-selling securitized debt as fast as they could create it.

Right?

Wrong.

It turns out that, in addition to many hares, the U.S. banking industry also had some tortoises, like Twin Cities-headquartered U.S. Bank ("The Contrarian: How Dan Arrigoni Saved His Bank Billions"; Minnesota Business, July 2009). The tortoises caught flak for missing the party, but after it crashed they were the ones still solvent.

Melt-Down Aftermath

If in fact some bankers had the prescience not to partake, why save the ones that succumbed?

How come only a handful of CEO's, like Countrywide's Anthony Mozillo, Merrill Lynch's John Thain, and now Bank of America's Ken Lewis, have been sacked?

Isn't that the essence of "moral hazard?"

On the other hand, if everyone really did get pulled in, then doesn't the flaw lie with the system -- its incentives, competitive pressures, etc.?

In that case, the logical response would be to reform the system.

Unfortunately -- depressingly -- one year after the financial crisis crested, we're getting neither corporate accountability nor systemic reform.