The smartest guys in several rooms!

I believe that anyone who would understand the latest developments on Wall Street stemming from the sub prime housing debacle should watch the documentary: The Enron Story: The Smartest Guys in the Room. This documentary can be understood on several levels but the message to me was simple: The desire to bend the rules in order to amass huge amounts of money and power cannot be kept in check by professional canons or by regulations that are not kept up to date with the latest sophisticated financial innovations.

The boys and girls at Enron concocted a financial house of cards that seemingly generated unheard of profits. Anyone whose judgment was not clouded by the opportunity to personally and corporately profit would have seen it as something that was too good to be true. Almost no one on whom the rest of us rely for information was able to see it for what it was. Law firms, accounting firms, financial institutions, investment bankers, Security and Exchange Commission, and the corporate officers themselves, all of them went along. Some even actively participated by providing opinions (financial and legal) that were perhaps narrowly correct but substantially inaccurate. They went along, it seems to me, because each of them had its percentage piece of the pie. When billions of dollars are involved, it doesn't take much of a percentage share to amount to real money.

One could simply lay the blame on the greed of those involved. The housing crisis, however, helps us see that there is a systemic problem with greed that requires some type of systemic solution. While the Enron manipulation affected millions of people, it involved a relatively small number of people in the actual manipulation. In the housing crisis, the financial institutions found a way of implicating those millions in the manipulation itself. Not only were business organizations involved (real estate developers, home builders, real estate sales) but this time millions of individual citizens. This last feature insured that if (or when) the house of cards came crashing down, the government could be counted on to bail out the system. The fact that main line financial investment institutions took the bait of exotic investment instruments based on the sub prime mortgages only sweeten the deal and made government back up all the more inevitable.

This arose not just from the greed of individual actors but from the sense of entitlement to ever increasing wealth among the wealthiest Americans. Over the alst eight years, the gap between the wealthiest five percent of Americans and the rest of us has been widening. Those top five percent have seen their incomes and wealth appreciate markedly while the rest of us have been barely able to keep up with inflation. It has gotten to the point where the wealtheist feel that they not only ahve a right but a responsibility to become a wealthy as possible regardless of what happens to the rest of us. How else can one explain the making of millions of loans to people who did not qualify? This could only happen because of a real estate bubble; in fact, it continued and accelerated that bubble. All bubbles burst! What the weathiest know and knew was that they are relatively immune to those busts. They play with wealth money not income money, the money the rest of use to pay our living expenses: mortgages, transporation, education, health care, food expenses. They could make money by stimulating the desire of those less wealthy to live as though they were wealthy. Once the bubble burst, the wealthy walk away with their earnings and outsized bonus payments while the rest of us sink back into the reality that we are not and probably never will be wealthy and we do this in rental housing.

This culture of entitlement wasn't created by government action but it has been given steroids by the Bush tax cuts, the gutting of oveersight regulation, increasing tax favored treatment for corporations, and blathering about the "ownership society." Clearly this is time for a change.