Well, just last week, President Bush was caught making a candid comment at a private gathering. When asked about the cause of the global credit crisis, the president responded, “There is no question about it. Wall Street got drunk.” The president paused, and said, “That’s one reason I asked you to turn off your TV cameras.”Well, oops, the TV cameras might have been off, but someone caught the episode on a mobile phone camera. But I am glad they did. Because, in his snappy comeback, the president hit the nail on the head. As the president went on to explain, “[Wall Street] got drunk and now it has a hangover. The question is, how long will it (take to) sober up and not try to do all these fancy financial instruments?”
As Heidi Moore writes in the Wall Street Journal, there is an even stronger explanation than drunkenness for Wall Street hawking “fancy financial instruments.” Worse than being drunk—what happened, she explains, is that “thousands of traders and executives that pumped up the credit boom made specific decisions to buy ever more collateralized debt obligations. They saw competitors making a mint and followed suit. If they were under the influence of anything . . . it was greed.”
And lenders, knowing someone else was buying their mortgages, urged people to take them whether they could pay them back or not.
The problem was greed unchecked by any moral restraint.
For example, look at what some big-time sellers of high-risk, mortgage-backed securities did. As reported in the New York Times and Wall Street Journal, when the market for these securities began to look shaky, one house sold much of its stockpile of mortgage-backed securities to eager customers—all the while selling the securities short, betting the market would go down. The company made handsome profits, of course, but what about its customers?
So where are we after years of unrestrained greed on Wall Street, coupled with a lack of prudence on the part of individual lenders and borrowers? Well, the U.S. economy is, to put it mildly, shaken, as is the world economy. Second, due to the unscrupulous behavior of a few, the Fed, the SEC, and Congress are ready to step in and regulate the markets more than ever.