The Committee to Destroy the World

CHAPTER 1 The 2008 Crisis— Tragedy or Farce?

In 1852, Karl Marx wrote that history tends to repeat itself—the first time as tragedy, the second as farce.¹ Nowhere has this warning about man’s compulsion to repeat his mistakes been more frustrating to witness than in the world of finance. When it comes to finance, there is only one certainty: Mistakes will be repeated again and again until their perpetrators lose their minds, their jobs, their money, or all of the above. The worst part is that professional perpetrators will lose all of their clients’ money as well as their own. If the working definition of insanity is repeating the same mistake over and over again while getting the same bad result, then Wall Street is a living exemplar of an insane asylum. Not only do Wall Street, policymakers, and regulators repeat their mistakes, they always manage to commit larger, more expensive and more reckless ones each time around.

While driving to work at the Beverly Hills offices of the investment bank Drexel Burnham Lambert, Inc. early one morning in February 1990, I wasn’t thinking about Marx’s dictum. But by the time I drove home that afternoon (earlier than planned), I was living it. The last thing I expected that day was to be called into a meeting and told that one of the most powerful firms on Wall Street was going to declare bankruptcy later that day. I was blown away. At the time, Drexel had all of $3.5 billion in assets and was the biggest underwriter of junk bonds in the ...