The Clued-in, the Clueless, the Oblivious and the Conflicted

I’ve now read perhaps 10 books about the financial crisis. Maybe I’m a junkie, but each has given me new information or a fresh way of looking at events.

“All the Devils Are Here” offers a treasure trove of information about company behavior during the crisis, notably Fannie and Freddie, Goldman Sachs, Merrill Lynch, AIG, Countrywide, and Ameriquest. It also adds to our information about Bear Stearns, Federal government agencies, and others.

Some commentators on the crisis identify villains – individuals, corporations, institutions, government entities, or failures of the system itself. Some authors assert that certain would-be villains are actually blameless. Those held harmless presumably only acted as they must, given their incentives and the duties assigned them by their roles. The choice of whom to indict and whom not to indict often depends on the blamer’s visceral aversions – anti-government, anti-corporate, or anti-system.

McLean and Nocera are, by implication, equal-opportunity indicters. They make the government sponsored enterprises Fannie and Freddie on the one hand, and wholly private enterprises like Ameriquest, Merrill Lynch, and AIG Financial Products on the other, look pretty bad – not to mention the rating agencies, to which we shall come soon.

Some who blame government and by and large hold Wall Street harmless – including many on Wall Street – assume that regulated entities will do what government allows them to do. If the government doesn’t regulate correctly, what they do will not turn out well; if government regulates well – meaning in a laissez-faire manner, with favoritism toward none – things will turn out optimally. This view, labeled utopian economics by John Cassidy in his book “How Markets Fail,” still has many adherents.

Am I one of the few who believe that firms should heed a higher moral code than simply avoiding running afoul of the law? I’m not even talking about “corporate social responsibility” here, just what I think used to be called professionalism. Companies like Goldman Sachs probably once adhered to that credo, but it is now almost fully eroded.