Transferring wealth from "dumb money" (our pensions) to "smart money" (hedge funds)

Bethany McLean writes:

Goldman did not tell a customer who didn’t want to lose money — the very definition of a buyer of AAA-rated securities — that the investment it was selling had been rigged to amplify the chances that it would, yes, lose money.

Transactions like this one open up a window into modern finance, and the view is downright ugly. This deal didn’t build a house, finance a world-changing invention or create any jobs. It was just a zero-sum game that transferred wealth from what Wall Street calls “dumb money” (often those who manage the public’s funds) to a hedge fund.

She then, correctly, says the parties most culpable for the financial crisis were Congress, the Federal Reserve, and federal government regulatory agencies who all did, at best, nothing helpful and, at worst, set the table for the crisis by eliminating the laws preventing Wall Street firms from gambling with money it did not have but could be supplied only by taxpayers.

Posted by James on Tuesday, April 27, 2010