Investment Bankers and the "Flip Wilson Defense"

What really irks me is when bankers use the “Flip Wilson Defense”: “Greenspan made me do it. If interest rates were not so low I never would have done what I did.”

If you think back at how weak our economy was after the Dotcom Crash, 9/11, Anthrax Scare, SARS, etc., the economy was growing very slowly, companies had stopped investing and we were truly at risk of a deflation spiral. Now if you also take away the irrational credit expansion of the 30x leverage, the housing bubble and the related consumer binge and substitute in its place rational lending practices to individuals and more capital allocated for property, plant and equipment investments by the private and public sectors, then we would have had a very different outcome - higher productivity, a more competitive economy in the global marketplace, fewer bad investments in housing and commercial real estate, stronger household balance sheets and no financial collapse.

In other words the lower interest rates would have been used for efficient allocation of capital and would have been a “force for good” (as our good friends at Goldman like to say about themselves).

I am no Greenspan apologist. He royally screwed up with his hands off, self-regulation ideology and therefore history will correctly show that he shares in the responsibility for permitting the banks to promulgate a financial crisis.

But too much of the blame is being placed on his interest rate policies. It has become too easy for the banking community to deflect responsibility and to rationalize that it was Greenspan’s interest rate policy and not their own actions of taking advantage of a deregulated marketplace in order to engage in risky and indiscriminate behavior.

Bankers are wrong to say: “Greenspan made me do it.” They would be far more correct if they said: “I convinced Greenspan and the government to let me do it and boy did I screw it up.”