...during the late, great credit bubble, an Era of Cheap Money devolved into an Era of Dumb Money, and then into an Era of Dumber Money. The culture of Wall Street and the rise of the shadow banking system spawned reckless, largely unregulated lending, borrowing, and trading, a financial culture that preferred short-term fees to long-term gains, and that confused liquidity (access to other people's money) with cash on hand. Looking back, the investors who believed the stories told by Madoff and Stanford—that they could deliver steady, positive, market-beating returns in any type of climate, despite the manifest failure of virtually every other money manager to do so—were obviously foolish. But our best financial minds also spun tales and theories with great assurance, making seemingly irrational and unprecedented activity seem completely sensible.
That's from and article by Daniel Gross, author of Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation.
I'm a financial moron but even I suspected the business world had long ago sacrificed long-term interests on the altar of short-term profits. It's the natural byproduct of a system dedicated to making ever greater profits—at ever greater speed. Steady, modest growth is for losers. If profits made over years are good, then profits made in minutes are exponentially better, right? Particularly if you can string a whole bunch of those minutes together for years. Well, at least until you've pumped dry the well of prudent profits and have to resort to increasingly dubious methods.
Gross goes on to relate how the Big Financial Minds convinced us ordinary people it was really smart and safe to assume huge mortgages. Hey, credit was cheap, housing prices would only rise, wages would rise, and financial institutions were eager to buy debt. Your home is a smart investment, they said. You aren't going deeper in debt, you're investing in your portfolio. Yeah, that's it. Oh, and be sure to take some short-term profits with home equity loans and the like. Because that's really smart.