In the new issue of the New Yorker, Malcolm Gladwell delves into what really caused the collapse of Wall Street. His conclusion: It had more to do with cocky banker egos than it did institutional failure or general dumbassery.
Gladwell being Gladwell, he arrives at his conclusion using thousands of words, large portions of which are devoted to riffs on card games and British invasions of Turkish islands, among other things, but his main point is this:
Since the beginning of the financial crisis, there have been two principal explanations for why so many banks made such disastrous decisions. The first is structural. Regulators did not regulate. Institutions failed to function as they should. Rules and guidelines were either inadequate or ignored. The second explanation is that Wall Street was incompetent, that the traders and investors didn't know enough, that they made extravagant bets without understanding the consequences. But the first wave of postmortems on the crash suggests a third possibility: that the roots of Wall Street's crisis were not structural or cognitive so much as they were psychological.
Now, I read Gladwell's piece and do think that his argument has some merit. However, I have a fundamental disagreement with something, and it is this: I believe that the psychological roots of the Wall Street crisis, the same roots that Gladwell is saying were the driving force behind everything that went wrong, would not have existed if it were not for the massive cracks in the structural and cognitive foundation of the banking industry. In other words, the incompetence of regulators combined with the blissful ignorance of the players involved joined to create a perfect storm of ego-tripping. You follow?
Now, surely a strong argument can be made that if the human psyche weren't so Goddamned flawed, then the other factors wouldn't have affected it in the first place, thus all of the blame falls squarely at the feet of humanity's vast psychological faults, but then you're just getting into a great big "which came first, the chicken or the egg?" argument, and honestly it's 5:40 in the damn morning right now and I'm only confusing myself the more I write about this, so just go and read the thing yourself and make up your own damn mind, okay?!
Cocksure [New Yorker]