With Lehman Brothers Holdings Inc. collapsing, and Merrill Lynch & Co. surrendering, and all hell breaking loose in the financial markets, Bloomberg News sent reporters out to gather some impressions from ordinary nonfinancial Americans.
Many had no idea what any of it meant but few were happy about it. They sensed they'd just been handed the role of the little fat kid in the game of crack the whip, who, at the start of the game, feels nothing at all but then suddenly finds himself launched headfirst into the neighbor's bushes.
They hadn't suffered yet but were preparing to, and they were perplexed by their inability to figure out who had the idea for this game.
"If I knew more I could find someone to blame," said Linda Burke, a 57-year-old service consultant at AT&T in Atlanta, speaking, no doubt, for the American people.
She'll probably never get her hands on the real villains of this piece. They're obscure; their crimes are hard to understand. Who inside Wall Street dreamed up the first subprime-mortgage-backed mezzanine CDO and allowed BBB credit to be laundered through the credit-rating companies and come out the other end as AAA? Who inside Lehman Brothers — and at all the other Wall Street firms — fought to get into the business over the objections of saner traders?
This is a pleasant side-effect of Wall Street's complexity. Not only does it enable the firms to hide the risks they run; it allows the people who make fortunes, while at the same time helping destroy vast amounts of capital, to remain essentially unknown to the wider public.
Even if they were to be somehow dragged out into the square for a shaming, no one would understand what they did. It's impossible to publicly humiliate a derivative.
There are, however, two culprits whose crimes are easy to grasp. I offer them up to Ms. Burke, so she can get to work on her feelings about them.
(1) Christopher Cox. He's the chairman of the Securities and Exchange Commission, and so has the job of regulating these companies that helped make it possible for every poor American to get a mortgage and are now, as a result, falling apart.
That, in itself, is no reason to blame him. He inherited a broken operation: The SEC has been morally bankrupt for some time now. The people who work for the place — especially the ones who call the shots—have for years had a disconcerting habit of leaving their low-paying government jobs regulating Wall Street firms for high-paying ones at those same Wall Street firms.
They are meant to guard against systemic corruption when they are themselves systematically corrupt. It's hard for people who are paid $85,000 a year to police people who are paid $15-million.
Happily, you can still blame Cox for something. He went as far out of his way as he could to enable the brokerage firms by harassing the small group of informed financial people who have been trying to tell the truth to the markets: the short sellers. They bet against the stock price of a company and so have always had a bad reputation with the public. But in this case, they are the closest thing we have to heroes.
A man named David Einhorn is a case study. He runs a hedge fund called Greenlight Capital, which sells short some stocks and buys others. That is, he doesn't just bet against companies but for them, too.
Still, for some time now, he's been standing up in front of large audiences, announcing that he was short Lehman Brothers stock, and then explaining in great detail its dubious accounting practices. The SEC responded by demanding to see his firm's e-mail, hinting darkly that he was part of some conspiracy to drive Lehman Brothers out of business, and generally making him feel that he'd pay a price for telling the truth.
Christopher Cox is probably a nice man who has no real idea what just happened. But for the way he treated people with the nerve to speak the truth to power you should feel free to blame him anyway.
(2) The Wall Street CEO. Stan O'Neal was the chief executive officer of Merrill Lynch, Dick Fuld was the CEO of Lehman Brothers, James Cayne was the CEO of Bear Stearns. Each took home tens of millions of dollars in pay for making the decisions that destroyed his firm.
O'Neal deserves perhaps the greatest scorn as he took a business that wasn't well designed to take huge trading risks and wagered it all on a single bet.
Interestingly, if any of these men had behaved well and resisted the pressures and temptations of the moment, his firm would have, for several years, dramatically underperformed the competition. Probably he would have lost his job.
Even O'Neal can probably look back on his performance and say to himself, "There's nothing I'd do different, given what I knew at the time.''
That's what they all say — right before they're beheaded.