Friday, October 16, 2009

It's the fault of smart guys

Calvin Trillin explains how the financial crisis was caused by the migration of smart guys to Wall Street. Wall Street used to be populated by the lower third of the class. Then smart guys started going too. That is what caused the invention of complex securities:
“Did you ever hear the word ‘derivatives’?” he said. “Do you think our guys could have invented, say, credit default swaps? Give me a break! They couldn’t have done the math.”
“When the smart guys started this business of securitizing things that didn’t even exist in the first place, who was running the firms they worked for? Our guys! The lower third of the class! Guys who didn’t have the foggiest notion of what a credit default swap was. All our guys knew was that they were getting disgustingly rich, and they had gotten to like that. All of that easy money had eaten away at their sense of enoughness.”

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