If memory swerves: The 1 percent laughs last, as Wall Street wins again

If memory swerves: The 1 percent laughs last, as Wall Street wins again

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Later that day, in a climate of almost complete panic, Merrill Lynch — the nation’s third-largest investment bank, which had fed at the same trough — managed to find shelter in the arms of Bank of America. By the next day, the Federal Reserve and the Treasury Department announced that they were saving AIG, the mammoth insurance company that had transformed itself into a stealth hedge fund. As for actual hedge funds, more than 700 of them collapsed in the subsequent four months. And Goldman Sachs and Morgan Stanley, the last two investment-banking leviathans, desperately registered themselves as “bank holding companies” and threw themselves upon the mercy of the all-forgiving Fed.

It was the unavoidable explosion after decades of deregulation and willful blindness. A kind of waste product had been deliberately moved through the bowels of a hundred shady mortgage outfits. It was then gilded by delusional ratings agencies and sold to the world by the most respected names in finance. Bribery and deceit and crazy incentives had been the laxatives that pushed this product down the pipe; money and bonhomie and reassuring economic theory had been the sedatives that put the regulators to sleep.

The industry would supervise itself, we were told — and we believed it. Instead our economic order turned out to be wobbly, even rotten. The great banks looked insolvent. The great capitalists looked like criminals.