Wall Street and the Financial Crisis-Anatomy of a Financial Collapse

Yesterday the United States Senate’s Permanent Subcommittee on Investigations, chaired by Carl Levin and minority member, Tom Coburn, released a 650 page document entitled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse.  In short, the document firmly lays the blame for the financial collapse of mortgage markets worldwide and the resulting onset of the Great Recession on hubris.  Shocking!

My very first post on this blog back in 2008 was entitled, “The ‘Financial Crisis’ is Really an Ethical Crisis.”  In many other posts I have engaged in criticism of capitalism as currently practiced in the modern era.  I have made various suggestions for how to change the system in “A Proposal for Change, Part 1” and “A Proposal for Change, Part 2.”  Now we have the Senate’s exhaustive two year study to confirm what I have been saying all along.

Rather than providing needless commentary on the report, let me reproduce the Wall Street and the Financial Crisis: Anatomy of a Financial Collapse press release about the report itself as it does a brilliant job of speaking for the report’s voluminous contents:

“Using e-mails, memos and other internal documents, this report tells the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets.  High risk lending, regulatory failures, inflated credit ratings, and Wall Street firms engaging in massive conflicts of interest, contaminated the U.S. financial system with toxic mortgages and undermined public trust in U.S. markets.  Using their own words in documents subpoenaed by the Subcommittee, the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them.  Rampant conflicts of interest are the threads that run through every chapter of this sordid story.

“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently…

“Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing.”

I could continue quoting from the document.  However, these opening sentences provide the necessary context.  Unfortunately, folks there have been very limited prosecutions of the people who perpetrated this tremendous financial crime against humanity.  In fact, it remains business as usual for a lot of Wall Street firms.  How do I know this?  Because I still have friends who work on Wall Street and at high levels and they have shared with me that most firms are just biding their time until the economy normalizes.  Their expectation is that they will again engage in business as usual, having survived with their fortunes largely intact.  Despicable.

The Wall Street and the Financial Crisis: Anatomy of a Financial Collapse report makes 19 suggestions for change that I will be sharing with you and evaluating over the next several days.  I am certain that it will make for interesting reading.

Before signing off, please consider that regardless of your political disposition, conservative or liberal, poor ethics is not a value worth upholding.  Folks on Wall Street are already starting to bristle at financial re-regulation.  They see it as a battle of attrition.  They know that as soon as most Americans feel good about the world that they will then have all the cover they need for beginning the process of whittling regulations back.  The argument is always the same: regulation is bad because it stunts growth and therefore it stunts the economy and job creation.  Remember the job losses and home losses of the Great Recession when you hear them utter these words in the forthcoming decades as I promise you this will be the refrain.

Jason