Before we can even catch our breath, we learn that the Fed has bailed out AIG to the tune of $85B to forestall an even greater calamity in capital markets across the world. [You can read about this everywhere but here’s a convenient link to today’s Wall St. Journal lead article.] Probably a good thing at this juncture but so much of this would have been avoidable if many of the warning signs would have been heeded earlier.

It would be easy, but naive, to blame the greed of Wall St. for all of these problems. Sure, there’s a lot of that to spread around and some of the gaudy exit packages are illustrative, e.g., the top 3 executives at Merrill Lynch stand to gain up to $200M after being there less than one year and presiding over the passing of the venerable 90+ year old financial titan.

I think there are two key reasons why these financial tragedies appeared on stage at all. (more…)