I finished reading Michael Lewis's latest book, "The Big Short," on the plane back from DC last night. I think it is a must read for anyone who wants to understand what happened with the housing bubble between 2005 and the present. It is both a funny and infuriating book. I wish it contained more answers about how to prevent the next Wall Street crisis, because there will certainly be another one--it's only a matter of time.
The recent action by Congress and the regulators have done nothing to correct the conditions that gave rise to the financial catastrophe we've endured over the last three years. As long as Wall Street firms have the ability to lie, cheat and steal from ordinary Americans with impunity we are exposed. An enormous amount of brainpower goes into the financial sector every year to generate obscene profits that enrich a very small number of people. The resources expended in this sector and the profits they produce have been defended with the argument that they serve to spread risk and make markets more efficient. The absurdity of this argument is now clear.
The actions of AIG, Goldman Sachs, Bear Sterns, Morgan Stanley and even Citicorp, Bank of America and other commercial banks created risk instead of spreading a given amount of it and ultimately led to the lockup of the financial system and situation from which we have still not recovered.
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