A big part of the problem is that people in these financial companies were paid astronomical bonuses for raking in huge profits in the near term. The pay structures seem to reward short-term profiteering over the longer picture.

There was an interesting article in the NY Times explaining how a relatively small unit of AIG, the Financial Products unit, was responsible for its downfall. The individuals who were responsible made vast sums of money, and it looks like they'll get to keep it.

http://www.nytimes.com/2008/09/28/bu...1&ref=business

This particular unit increased its annual revenue from $737 million in 1999 to $3.2 billion in 2005. Bonuses paid to the 377 employees of this unit over the last 7 years totaled 3.5 billion!

They generated enormous profits by collecting premuims to insure debt for a period of time, selling credit default swaps. "Because the underlying debt securities — mostly corporate issues and a smattering of mortgage securities — carried blue-chip ratings, A.I.G. Financial Products was happy to book income in exchange for providing insurance. After all, Mr. Cassano and his colleagues apparently assumed, they would never have to pay any claims."

The problems began when the underlying securities began to lose value. The contracts required AIG to put up collateral, collateral which they never expected to need. The portfolio of outstanding credit default swaps for AIG is valued at over $500 billion. That's a huge exposure, hence the need for the $85 billion bail loan from all of us.

The more that I read & begin to get a picture of this financial house of cards that's starting to tumble, the more that I believe that promoting inflation will be the cornerstone of our economic policy. They won't call it that, but that's what they're going to have to do keep the balls in the air. Wages won't keep up for regular people, the dollar will fall in value, and their will be a move toward a decreased standard of living for ordinary Americans. That's my prediction.

Mr. Silver, I've heard analysts saying that the total drop we've had in stock prices from their high is equal to that typically experienced over a bear market, and these analysts suggest that that indicates that it's nearly over. I don't think it's fallen enough, because housing prices are still too high relative to median income to sustain. Further, I don't think the drop in consumer spending has made its way into the system yet. Finally, I think every company in America is going to be looking for ways to reduce expenses right now & that translates into rising unemployment.