More on the financial crisis

As the dust settles, the received opinion on the cause of the credit market crash is generally in line with I wrote in my post back when the crash really got going. But dashing off a blog post and delving into the details to tell the whole story are two very different things. Fortunately, here is an absolutely terrific piece on the subject by Michael Lewis, who wrote the seminal work on Wall Street in the '80s, Liar's Poker. He is a terrific writer and savvy enough to see through most of the bullshit that the financial world uses to cover up its incompetence and thievery.

In addition to covering how the risk modeling and credit rating analysis was utterly bogus, he points out several features of Wall Street culture that helped create the crisis. One notable point he makes is that the big banking houses, which used to be privately owned, are now publicly-traded companies. This made for a totally screwed up incentive system:

No investment bank owned by its employees would have levered itself 35 to 1 or bought and held $50 billion in mezzanine C.D.O.’s. I doubt any partnership would have sought to game the rating agencies or leap into bed with loan sharks or even allow mezzanine C.D.O.’s to be sold to its customers. The hoped-for short-term gain would not have justified the long-term hit.

The writer combines a good understanding of the nuts and bolts of finance with a piercing eye for the very human motivations that drive decisions in the world of high finance. So hie thee hence and read the whole thing!