Of Vice and Men: Wall Street's Ethos Shouldn't Get a Pass

Bank analyst Dick Bove says the U.S. trade imbalance, not Wall Street avarice, is what caused the financial crisis.

“What Congress is now doing is not looking at root causes, which is essentially that the U.S. was not producing goods sold globally,” Bove said, speaking at the The Deal Economy 2010 conference on Wednesday in New York. “All explanations concerning how we got into this crisis are incorrect. They dwell on the fact that there was too much greed, fraud and excess on Wall Street. Certainly, that occurred, but it wasn’t the reason we got into the banking crisis.”

The problem, according to Bove, was that the U.S. did not manufacture and sell goods globally. Instead, the U.S. printed the money to buy cheaply made goods from China and in turn, China developed a $2 trillion trade surplus backed by dollars. With nowhere to invest that money, the U.S. began investing in an area that it thought could absorb such a hefty amount of assets: the U.S. real estate market.

A quibble. Huge amounts of foreign capital pouring into the U.S. unquestionably encouraged financial firms to lever up, and it probably did something to short-circuit their risk management fuse. But Bove gives short shrift to greed and fraud.

By all accounts, AIG Financial Products was chock full of the stuff. So, it appears, was former Countrywide CEO Angelo Mozilo, who spouted happy talk to company stockholders while dashing for the exit. And what exactly was priming the pump for collateralized debt obligations, credit default swaps and other financial exotica if not “greed,” defined here not as in the cardinal sin sense but as the garden-variety cupidity Gordon Gekko cooed about?

Object to the terminology? Fine — call it what you will. Greed’s a matter of opinion, and frequently mistaken for self-interest, while fraud is a legal conceit. It may even make sense, as Bove suggests, to treat them as ancillary causes, or even as symptoms of some graver malady. But to discuss the financial crisis without making a little room for greed and fraud is to take the human element out of a distinctly man-made event. It makes no sense.

Bove also omits another leading cause — stupidity, which may or may not be related to greed and fraud. After all, it wasn’t Chinese investors who forced U.S. banks to tear up their lending standards and issue loans to anyone with a debit card. Nor did China and other foreign interests order U.S banking regulators to check out for a lunch for a decade or so.

And did Beijing bend Alan Greenspan’s fingers back, as the U.S. economy was spinning out of control, to keep interest rates low? Well, maybe just a little. But that was mostly Greenspan’s doing, waving his baton at the U.S. economy all those years clutched in his invisible hand.

Wish to characterize that performance as something other than “stupid”? OK. Today’s wisdom is tomorrow’s folly. But perhaps we can agree it wasn’t smart. By the same token, whatever Wall Street’s motives were, I submit they weren’t driven by generosity and a burning desire to tell the truth.

Besides, if this latest financial crisis doesn’t owe at least a little to simple human vice, it would be the first in the history of the world not to.