The Financial Crisis Blame Game

Think of the current market and economic turmoil as a disaster by committee, with blunders by government officials, Wall Street pros, and regular Americans alike

By Ben Steverman and David Bogoslaw

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The idea for "The Financial Crisis Blame Game" came from BusinessWeek reader Joe Lacenere, who works in supply chain management for a leading multinational. Joe has been a loyal reader of BusinessWeek for at least 15 years.

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U.S. Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, Chairman of the Securities and Exchange Commission Christopher Cox, and Director of the Federal Housing Finance Agency James Lockhart III. Chip Somodevilla/Getty Images

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Tune in to Anderson Cooper on CNN and watch as he counts down the "10 Most Wanted Culprits of the Collapse." Pick up the New York Post and read about FBI investigations of top financial firms under the headline "Fraud Street." With a bewildering and frightening financial crisis in full swing, the new national pastime is finding someone to blame.

As markets crash and retirement dreams fade away, media and the public are full of outrage at everyone from mortgage brokers and Wall Street CEOs to real estate investors to experts who failed to predict the crisis was coming. Congress hauls the most prominent executives before tough committee hearings, while political candidates blame each other. Pundits proffer lists of the mustache-twirling villains who caused the whole thing.

An Epic Whodunit

Investigators will undoubtedly uncover fraud, cheating, and other criminal behavior. But for now, there is no shortage of players who stand accused of having a hand in the crisis. It just depends on where you think the landslide began or who gave it the biggest push.

If you blame loosened financial regulations, maybe former Sen. Phil Gramm (R-Tex.) or Securities & Exchange Commission Chairman Christopher Cox are your men.

Think that a political push to boost homeownership handed too many people mortgages they couldn't afford? Why not single out Franklin Raines, former CEO of Fannie Mae?

Maybe you think the whole housing bubble could have been avoided with an interest rate increase (Alan Greenspan, step right up). Or, that folks should never have signed up for no-doc, interest-only loans, no matter how many silhouettes danced across their computer screen in a Web ad. In that case, the villain may be no further than your bathroom mirror.

(For a walk through some of those people who are blamed for having a hand in the meltdown, go to our slide show.)

"Whole System" at Fault

Of course, all of these people had something else in mind other than wrecking the U.S. economy. Some of them were making lots and lots of money—for themselves, of course, but also for their investors. Others truly believed in the virtue of freeing the marketplace's animal spirits from the cold hand of government regulation. And how many people were arguing against the virtues of homeownership?

Just the fact that one can assemble such a long list of possible villains gives a hint as to how many institutions, officials, and regular Americans made mistakes. "It's so difficult to pinpoint one person or two people," says Georgetown University finance professor Reena Aggarwal. "It really was the whole system."

Even Presidential candidates eager for votes have acknowledged there's no easy scapegoat. "Part of the reason this crisis occurred is that everyone was living beyond their means—from Wall Street to Washington to even some on Main Street," Senator Barack Obama (D-Ill.) said on Oct. 13.

Indeed, it was a series of bad ideas, surprising linkages, and all-too-predictable blunders that came together to send the U.S. financial system, and then the entire world economy, into a serious credit crunch and global stock panic. That's not to say that it couldn't have been prevented.