Let's talk about greed

Yeah, let's talk about greed. For you see, it is greed that has put the United States -- and many other financial powers in the fine soup that they are in today. And not just any greed, mind you, but stuff that in retrospect seems more outlandish than most.

We all remember the crisis brought on by LTCM (Long Term Capital Management), that firm of wizards who made some rather stupendous bets on the bond market and certain spreads. They were invincible, remember? Masters of the Universe. Only for some reason -- chiefly a market discontinuity like a Russian debt crisis -- the mathematical models didn't work. So the huge leveraged bets "went south." Equity fell from $2.5 to $600 million in month. And the Fed Chairman called a few senior bankers into a room in lower Manhattan and told them what they were going to be doing to save the day. Just like that.

Today we have another problem: the huge leveraged bets are far more evenly spread around the world and the makers of the bets are punks who spent a few years at Goldman, CSFB, UBS ... fill in the blank ... and opened up shop as a "hedge fund." And bankers fell all over themselves to get them started, because you can't believe how much they made on the transactions made by the punks. Some of these punks are very smart. Some were just lucky. But the systemic risk that they pose as a group is incredible.

So why did "we" let things grow out of control when we knew the risks posed by discontinuities?