Much is being made these days about the unwillingness of the banking system to make the loans needed to regenerate the vitality of our economy and restore prosperity to the world. Populist rhetoric is at an all time high and the usual suspects are, of course, the bankers themselves. We are actively chastising the banks for the dumb loans they made while, ironically, castigating them for now being too tightfisted. Of course, even in the best of times, the bankers of Wall Street are never societal heroes; in the popular culture, the true banking heroes and icons are Bonnie and Clyde. Still, it is worth asking how the seemingly brilliant and highly educated people who became bankers could have been so dumb.
But, there is a striking paradox in the immediate problems we are struggling with today. On the one hand, they were brought on by a relatively small segment of the financial community. At the same time, they were passively enabled by a massive and pervasive institutional failure of good governance at almost every level. When we unbury ourselves from the debris of today’s wreckage, the key question will undoubtedly be how this could have happened. How is it that our vaunted financial system was such a house of cards?