The finger pointing has only just begun, and there’s lots of targets to point at. Analzying what went wrong on Wall Street is clearly in everyone’s best interest if only to prevent trouble in the future. But the greatest danger is looking for scapegoats and missing the forest for the trees.
Let’s first recognize that a fair amount of the pain in the financial industry was self-inflicted. There simply wasn’t enough attention paid to risk management. Yes, there was a surplus of quantitative modeling, but at the end of the day too many relied on the math geeks, many of whom didn’t provide much value when it came to estimating the potential pitfalls of leverage, buying and holding mortgages of questionable risk, and diving headfirst into derivatives. Alas, the temptation to leave the analysis there is strong. It’s also a mistake, and probably dangerous if it influences the inevitable wave of policy changes that are coming.