http://www.nytimes.com/2008/12/17/opinion/17friedman.html?_r=1<snip>
One of Hong Kong’s most-respected bankers, who asked not to be identified, told me that the U.S.-owned investment company where he works made a mint in the last decade cleaning up sick Asian banks. They did so by importing the best U.S. practices, particularly the principles of “know thy customers” and strict risk controls. But now, he asked, who is there to look to for exemplary leadership?
“Previously, there was America,” he said. “American investors were supposed to know better, and now America itself is in trouble. Whom do they sell their banks to? It is hard for America to take its own medicine that it prescribed successfully for others. There is no doctor anymore. The doctor himself is sick.”
I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?
Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated.
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