How Too Big to Fail Became Wards of the State

Follow the fees, Phil!

All the rivers run into the sea,
Yet the sea is not full;
—Ecclesiastes

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Financial Crisis Inquiry Commission vice chairman Phil Angelides wants to know how financial institutions became so big as to require massive bailout during the crisis of September 2008...




Here's what Mr. Angelides is likely to discover. Rather than adhering to a fiduciary duty as responsible arbiters of risk, firms got hooked on fees available in promoting a securities Ponzi scheme whose overriding effect was to misprice risk. The credit created by securitization generally went to no use prospectively expanding in some manner lasting and robust the productive capacity of the economy. Rather, one financial claim upon another built atop some revenue stream (mortgages, credit cards, etc.) was created — with fees generated all along the way — further leveraging a physical economy whose capacity to produce real, tangible wealth has been collapsing for decades (this via "globalization"). Thus, it was only a matter of time before institutions holding some large portion of securities whose risk was grossly mispriced were called to account.

—Tom Chechatka