Wall Street's Gall.

• Author: Leopold, Les
• Position: Creation of new collateralized debt obligations by financial institutions - Essay

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"Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale. Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody's Investors Service."

--Bloomberg News, July 8, 2009

Y ou've got to admire Their gall. Wall Street firms crashed the entire world economy by selling fantasy finance instruments. They got bailed out by us to the tune of trillions of dollars in TARP money, cheap loans, and asset guarantees. And then they take our money and start it all over again!

And nobody in a position to do so seems willing to stop them.

Actually, the story is so outrageous that Wall Street is counting on us not to believe it.

Let's take it from the top. Starting in the late 1970s, the nation embarked on a grand experiment. Our leading economists and policy makers believed heart and soul that our economy truly could become magnificent if we did two things: 1) deregulate financial services as much as possible; and 2) "reform" the tax code so that the wealthiest among us would be unshackled to create new and wondrous investments and products for our economy. These steps (along with demolishing unions, gutting the minimum wage, and running pell-mell toward globalization) were to bring about an investment boom of mammoth proportions throughout our economy, and so raise all boats.

The yachts sure did rise. Here are some statistics:

* In 1970, the ratio of the top 100 corporate CEOs and the average worker's pay was 40 to 1. By 2007 it was 1,723 to 1.

* In 1970, the top 1 percent received 8 percent of the national income. By 2007, it was gobbling up 23 percent of the national income.

* In 2006, the top one-tenth of 1 percent of tax payers (about 140,000 tax returns) reported as much income as the bottom 50 percent (67.4 million tax returns). The last time we suffered from such an extreme income distribution? 1928-29.

Most of us had leaky boats. Between 1975 and 2007, the real wages of the average production worker (94 million of them, as of 2007) decreased by 18 percent.

So what did the tiny fraction do with all the money? Some of it was invested in the real economy. But there was so much money looking for tangible investments that opportunities dwindled along...