Why is Greece chastised for reckless borrowing while the financial institutions that profited for years seem to get off scot-free?
One of the first lessons I was taught on Wall Street was, “Know who the fool is.” That was the gist of it. The more detailed description, yelled at me repeatedly was, “Know who the fucking idiot with the money is and cram as much toxic shit down their throat as they can take. But be nice to them first.”
When I joined in Salomon Brothers in ‘93, Japanese customers (mostly smaller banks and large industrial companies) were considered the fool. My first five years were spent constructing complex financial products, ones with huge profit margins for us—“toxic waste” in Wall Street lingo—to sell to them. By the turn of the century many of those customers had collapsed, partly from the toxic waste we sold them, partly from all the other crazy things they were buying.
The launch of the common European currency, the euro, ushered in a period of European financial confidence, and we on Wall Street started to take advantage of another willing fool: European banks. More precisely northern European banks.
From ‘02 until the financial crisis in ‘08, Wall Street shoved as much toxic waste down those banks’ throats as they could handle. It wasn’t hard. Like the Japanese customers before them, the European banks were hell bent on indiscriminately buying assets from all over the globe.
They were so willing, and had such an appetite, that Wall Street helped hedge funds construct specially engineered products to sell to them, made of the most broken and risky subprime mortgages. These products—the banks called them “monstrosities” and later the media dubbed them as “rigged to fail”—only would have been created if they had reckless buyers, and the European banks were often those buyers.
When a bank buys an asset it is lending money; the seller is the borrower.In buying various assets European banks were doing what banks are supposed to do: lending. But by doing so without caution they were doing exactly what banks are not supposed to do: lending recklessly.
The European banks weren’t lending recklessly to only the U.S. They were also aggressively lending within Europe, including to the governments of Spain, Portugal, and Greece.