Finance

Don't Forget: Mistakes Brought Them Down

This might be kind of obvious, but after spending the morning reading about the emergency AIG rescue plan and the future of Lehman Brothers, I got nervous that something is missing.

People at all these companies made really stupid decisions. They ignored clear warnings. They went for big risks because they wanted big returns. They forgot common sense.

At the end of the day, this whole crisis was caused by banks giving mortgages to people who had no hope of paying back those mortgages. Then, Wall Street investment banks — the very ones in trouble now — acted like those lousy mortgages were the same as good mortgages. They transformed them into complex financial instruments and sold them to other banks around the world.

I think Alex and I did a pretty good job of explaining this in our This American Life story.

If you'd rather read a book, I really like Charles Morris's, Trillion Dollar Meltdown. (Here's a short, free version. I did a story for All Things Considered about him).

But whatever you read, don't forget: they screwed up. Big time. They wanted to grow faster than was healthy. They used lousy risk models.

These companies SHOULD feel the full weight of their decisions. It just so happens that their risky behavior has put the entire world economy at risk. The government feels it has no choice but to help out.

But everyone knows: these banks and insurance companies don't deserve the help.

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