September 18th, 2008
10:10 PM ET

How Financial Madness Overtook Wall Street

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/09/18/art.vert.wallstconstruction.jpg width=292 height=320]

Andy Serwer and Allan Sloan
Time Magazine

If you're having a little trouble coping with what seems to be the complete unraveling of the world's financial system, you needn't feel bad about yourself. It's horribly confusing, not to say terrifying; even people like us, with a combined 65 years of writing about business, have never seen anything like what's going on. Some of the smartest, savviest people we know — like the folks running the U.S. Treasury and the Federal Reserve Board — find themselves reacting to problems rather than getting ahead of them. It's terra incognita, a place no one expected to visit.

Every day brings another financial horror show, as if Stephen King were channeling Alan Greenspan to produce scary stories full of negative numbers. One weekend, the Federal Government swallows two gigantic mortgage companies and dumps more than $5 trillion — yes, with a t — of the firms' debt onto taxpayers, nearly doubling the amount Uncle Sam owes to his lenders. While we're trying to get our heads around what amounts to the biggest debt transfer since money was created, Lehman Brothers goes broke, and Merrill Lynch feels compelled to shack up with Bank of America to avoid a similar fate. Then, having sworn off bailouts by letting Lehman fail and wiping out its shareholders, the Treasury and the Fed reverse course for an $85 billion rescue of creditors and policyholders of American International Group (AIG), a $1 trillion insurance company. Other once impregnable institutions may disappear or be gobbled up.

The scariest thing to average folk: one of the nation's biggest money-market mutual funds, the Reserve Primary, announced that it's going to give investors less than 100 cent on each dollar invested because it got stuck with Lehman securities it now considers worthless. If you can't trust your money fund, what can you trust? To use a technical term to describe this turmoil: yechhh!


Filed under: Andy Serwer • Raw Politics • Wall St.
soundoff (51 Responses)
  1. John C/Republican/ Orange County CA

    Let’s get real folks.
    This financial meltdown and US budget deficit is a result of all of those folks who:
    1. bought a home with little or no down payment
    2. walk away from their mortgage commitment if the value of the house drops
    3. agreed to loans that they could not afford
    4. owe too much money on credit cards
    5. voted and supported candidates who prefer deregulation and spending without paying taxes to keep the budget balanced. Our public servants reflect their constituents agenda

    It would be very unpopular for a candidate to blame our society as a whole, so I’ll do it. Americans want all of the best of everything but we don’t want to pay the price. Now we are paying the price for decades of not paying for our indulgences and greed. In most countries if you want to own a home the buyer actually has to pay for most of it up front.

    September 19, 2008 at 12:11 pm |
1 2