So, why not criminalize so-called "financial engineering"?
After the smart money got out, things went to shit, quelle surprise. WaPo sifts the rubble:
Regulators of all stripes have had difficulty getting the information they need to fully understand the risks that financial firms are taking. The $50 trillion corporate derivatives market is a model of obscurity. The same could be said of many structured debt products, which slice up mortgages, credit card debts, or corporate loans in such ways that understanding how risky they are requires a PhD in mathematics.
Indeed, it is increasingly clear that Wall Street chief executives themselves didn't fully understand the risks they were taking on during the boom years of this decade; they have seemed as blindsided as any regulator.
The problems on Wall Street may go deeper. Financial firms have expanded vastly in the past decade, hiring tens of thousands of bright business school graduates to engineer new financial products, find ever more complicated ways to manage other peoples' money, and dream up new ways to combine, divide, and recombine corporate America.
Some large portion of that work, it now appears, wasn't really creating any value for the company's clients or for the U.S. economy. No matter how many times crummy mortgage loans are recombined into clever packages, they're still crummy.
Isn't this, almost literally, a shell game? And if the con is worked on The Street for trillions, instead of on the street for a little cash, does that make it any more legal?
In a perfect world, those excesses would be corrected by a gradual, orderly decline, in which a few firms get bought out by competitors, some modest layoffs occur, and Wall Street cuts back on its hiring for a few years.
In the real world, that correction is occurring before our eyes, through a series of convulsive weekends in which the entire financial world appears at risk of coming off the rails.
I don't care if the entire financial world down, and I hope they lose everything, instead of just "other people's money." I just hope they don't take us all down with them.