10 Dumbest Things on Wall Street in 2008

DUMBEST OF 2008 #1

Credit Crunch Chaos

By Gregg Greenberg, 12/26/08

Brother can you spare a trillion?

Nearly every dumb event that took place in 2008 was rooted in some way to the ongoing credit crisis, thereby meriting it the coveted top spot on our list. The bubble-like extension and collapse of credit -- from simple charge cards to complex C.D.O.'s (Collateralized Debt Obligations, that is) -- refocused an investing public that traditionally seeks its economic answers from the stock market.

No, it was bonds that set the terrible tone in 2008. Bad bonds. And they had a license to kill.

The losses and writedowns announced by Morgan Stanley(MS Quote) and Goldman Sachs(GS Quote) last week brought the losses by financial firms in the U.S. to $678 billion since last year, while European banks and insurers have written down a further $300 billion, according to Bloomberg.

That's nearly a trillion dollars lost down the drain, alongside more than two hundred thousand financial jobs, all due to Wall Street's failed love affair with mortgage-backed bonds.

Don't have enough money to buy that McMansion? No problem. Countrywide will give you a subprime loan. What do they care? They are just selling it to Bear Stearns or Lehman Brothers -- may they rest in peace -- where it can be wrapped up into a toxic sausage called a C.D.O. And once it's wrapped nice and tight, Moody's(MCO Quote), Standard And Poor's or one of the other crooked ratings agencies will bless it with a pristine AAA rating so it can be sold to a European bank or some other sucker overseas stretching for a slightly better yield.

That's how it worked. As long as the mortgage music was playing, Wall Street kept "dancing", to borrow a phrase from then Citigroup CEO Chuck Prince in the summer of 2007. (Good Ole Chuck boogied off later that year with $42 million bucks that shareholders will never see again.)

And it kept working that way until, like a financial Frankenstein, the monster turned on its creator, leveling every investment bank, commercial bank and hedge fund in its path. Financial firms fell, one by one, choking on the bad loans they brought to market.

But now the mess of 2008 is almost past, but it's not quite over. So far, what's left is a nation of battered banks, foreclosed homes and tapped out consumers -- who, let's be honest, were complicit in their own way for being swept up in a national wave of greed.

The banking industry, razed to the ground, now depends on Washington to bail it out and build it back up. And like the good public servants they are, Congress and the President are coming through, shoveling hundreds of billions of taxpayer dollars to the very same banks that caused this crisis. Their mandate: lend or else, no matter if it makes sense.

In other words, do the same damn thing that started this crisis in the first place.

Talk about dumb. 2008: Rest in peace.