This commentary aired on PBS's Nightly Business Report on March 27, 2008:
It's always the little guy who gets fleeced, while the smart money sneaks out the side door.
Well, not this time. With the subprime crisis metastasizing throughout the financial system, we're seeing something that's as reassuring as it is troubling: Wall Street is taking its lumps along with everybody else.
Nobody seems real surprised when ordinary Joes take on too much debt, or don't bother to read the fine print, and end up losing their shirts.
But now, it turns out the financial geniuses on Wall Street did the same thing. The collapse of investment bank Bear Stearns is basically a gargantuan foreclosure, with JPMorgan repossessing the distressed property.
And instead of fleeing ahead of the storm, the smart money at Bear got trapped. Hundreds of executives had their savings tied up in Bear stock. Their fortunes have evaporated, practically overnight. One investor even lost $1 billion. Thousands of jobs are disappearing, at Bear, Lehman, Goldman, Morgan Stanley, and other money firms.
Wall Streeters tend to suffer more luxuriously than the rest of us, and it might be second or third homes the spent bankers end up unloading, rather than the literal roof over their heads. But this still demonstrates that the binary view of the subprime crisis—Main Street is the victim, and Wall Street is the perpetrator—is vastly oversimplified.
Yes, there were villians, and, yes, there were dupes. But everybody got greedy. That includes homeowners who wanted more house than they could afford, along with bankers who wanted higher returns than they could get from conventional securities. If Wall Street committed a crime, then Main Street was an accomplice. And now they're both feeling the pain.