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.

Mpls . . . Banking Capital of U.S.?

Name the Country's *Banking Capital

See you how do on this quick financial quiz:

In order of total market cap ("capitalization," or entity value), calculated as of today (1/14/09), rank the following pairs of banks and their headquarters cities:

--Citigroup and JP Morgan (New York City)
--Bank of America and Wachovia (Charlotte)
--Wells Fargo and U.S. Bank (Minneapolis)

Answer: 1) Minneapolis; 2) New York City; 3) Charlotte.

Not convinced? Check out this video, "Minnesota rises as Citi Sleeps," on the (London) Financial Times' web site today.

*Note: although Wells Fargo technically is now based in SF, its predecessor, Norwest, was originally based in Minneapolis and maintains much of its operations and staff here.