Robert Reich's View on What Went Wrong

If you are weary of the financial news, stay away from here for a few weeks because I'm going to offer different viewpoints from prominent money professionals. We know this debacle will last for many more months...

Here's Robert Reich's take on the crisis, taken from his blog: Why Wall Street is Melting Down, and What to Do About It

The sub-prime mortgage mess triggered it, but the problem lies much deeper. Financial markets trade in promises -- that assets have a certain value, that numbers on a balance sheet are accurate, that a loan carries a limited risk. If investors stop trusting the promises, Wall Street can't function.

But it's turned out that many promises like these weren't worth the paper they were written on.

That's because, when the market was roaring a few years back, many financial players had no idea what they were buying or selling. Worse, they didn't care. Derivatives on derivatives, SIVs, credit default swaps (watch this one!), and of course securities backed by home loans. There seemed no limit to the leverage, the off-balance sheet liabilities, and what credit rating agencies would approve by issuers who paid them to.

Two years ago I asked a hedge fund manager to describe the assets in his fund. He laughed and said he had no idea.

Is this crazy or what?