Conversations With Wall Street: Book Excerpt

Excerpted from Conversations with Wall Street: The Inside Story of the Financial Armageddon & How to Prevent the Next One by Peter Ressler and Monika Mitchell with permission from FastPencil.

Profits without Purpose

"Guys were getting richer than they had ever dreamed. It was surreal. I knew at some point it had to end, but I never thought it would end like this." - Lehman Subprime Mortgage Trader

"So how did we get here?" I asked Jeff, the Lehman Brothers mortgage trader. "How did we go from giving people a second chance at home ownership to destroying the global economy?" As Jeff had explained in Chapter One, when the subprime mortgage product was first created, it had a genuine purpose. It provided a service to people who experienced unexpected hardship, yet had the ability to rise above their circumstances. Jeff continued: "Everyone got carried away with the amount of money there was to be made.

The Street was printing money because the demand for these securities was so high. In order to meet that demand, we had to lower some of the standards for who qualified for these loans. It was not just the Street: banks were printing money; brokers were printing money; investors were printing money; and borrowers were using their homes as cash machines. Guys were getting richer than they ever dreamed. It was surreal. I knew at some point it had to end, but I never thought it would end like this. I guess no one really understood how big this had gotten. No one ever thought it would end like this."

In the months to come, I would hear that statement from industry pros repeatedly. No one thought it would end the way it did. Another managing director who worked at Lehman for fifteen years told me: "I saw it coming due to the competitiveness. The returns were off the charts. It was money chasing money chasing money. No one knew or cared about the deals because there were investors behind investors behind investors." Everyone involved was chasing money and going after the big bucks, yet forgot how they were making it.

From Wall Street to Main Street, profits were made so fast that no one stopped to think about where they came from. Few understood the consequences of their actions would lead to a global meltdown and a threat to the American way of life. Many on Wall Street did not think the industry did anything wrong; after all, it was just making money the way it always had. Wasn't that what it was supposed to do? Did the system function on "evil and greed," as many ordinary Americans believed, or was there a basis of value that supported finance--a system of credit and debt that creates prosperity for hundreds of millions of people, or so Wall Street believed?

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