David Goldman, a former Wall Street executive turned blogger has some very interesting thoughts on how we got into this mess and how it could have been avoided. And he doesn’t mince words. I liked this following passage so much that I’m considering making it the official motto of Brave New Rich: “Real genius pays cash at the bar.”

There is only one truly effective way to control corporate corruption, and that is through creative destruction. Let the wild men, the warped geniuses, the chip-on-the-shoulder mad entrepreneurs loose on the established corporate world. Let big corporations go bankrupt right and left. Drive out mediocrity with the scourge of innovation. Let new companies emerge, and then go bankrupt when something better comes along. Real genius, as Heinrich Heine once rhymed, pays cash at the bar. The oddball entrepreneurial types don’t cheat. They see life as a game and want to play it by their own rules. They are out to prove that they are smarter than their peers, and to cheat would be to miss the point of the game.

For the average business school graduate, an entrepreneurial economy is a hell, presided over by a devil like Goethe’s Mephistopheles, whose job is to subvert complacency. This sort of economy has its own bubbles and crises, like the dot-com catastrophe of 2000. But that was a minor blip compared to the present mess, because it wasn’t done with leverage.

David also nails Corporate America and the culture of empty “networking” to the wall. I’ve read an enormous amount of research and analysis on the economic crisis, but very few writers are able to get down to the kernel level with such eloquence.

Mediocrity breeds corruption. The business world is crawling with affable, industrious, intelligent people with nothing to distinguish them from ten thousand other affable, industrious and intelligent people, but who very much would like to be rich. Except by winning the equivalent of a lottery or marrying up, their chances of becoming rich are quite poor. They joint a fraternity at college to make contacts, and went to business school to network. They have no friends, only contacts, as their entire social life from freshman year onward has been a struggle to get to know people who might help them. They live in silent terror that they will fall off the corporate gravy train and never have the chance to clamber back on.

These are the people most inclined to cheat, for they know that they have nothing unique to offer the world, and their ascent depends either on luck or unfair advantage. They cheat in every way possible, whenever they have a chance. One way they cheat is to steal from the stockholders by front-loading profits and back-loading risks. That is what destroyed the banking system. At the top of the market in 2006-2007 when risk compensation was stupidly low, bank managers made their return-on-equity numbers by adding leverage on top of leverage. Every one of them knew that it was a dumb and dishonest thing to do, but they all hoped that they would be promoted by the time the problem blew up in someone else’s lap.

Via First Things