WaPo: The Crash - What Went Wrong

How the most dynamic & sophisticated financial markets in the world came to the brink of collapse

The Standard-Examiner carries a compact Washington Post editorial this morning, briefly discussing the series of events (over two decades) which eventually led to the 2008 downfall of insurance mega-giant AIG, and the resultant daisy chain collapse of the whole world financial sector. It's a good "nutshell" piece, boiling down the root causes of the current global financial crisis in a tidy 428 words:

• A cautionary tale of downfall

The editorial also refers to a three-part investigative article series running last week in the Washington Post, under the bylines of Robert O'Harrow Jr., Brady Dennis and Bob Woodward. We'd followed this series ourselves, and had intended to feature it in an upcoming WCF article. Thanks to the Standard-Examiner's introductory lead, we're delighted to provide this article series right on cue.

For readers interested in a more detailed explanation of how Wall Street innovation outpaced Washington regulation and brought the world economy to its knees, the following three WaPo articles are a definite must read:

1. Greed on Wall Street and blindness in Washington certainly helped cause the financial system's crash. But a deeper explanation begins 20 years ago with a bold experiment to master the variable that has defeated so many visionaries: Risk:

• Part 1: The Beautiful Machine

2. By 1998, AIG Financial Products had made hundreds of millions of dollars and had captured Wall Street's attention with its precise, finely balanced system for managing risk. Then it subtly turned in a dangerous direction:

• Part 2: A Crack in The System

3. How could a single unit of AIG cause the giant company's near-ruin and become a fulcrum of the global financial crisis? By straying from its own rules for managing risk and then failing to anticipate the consequences:

• Part 3: Downgrades And Downfall

Don't forget to bookmark this, Weber County Forum economics wonks. This is by far the most detailed and sophisticated post-crash post-mortem reporting and analysis that we've come across so far -- Pulitzer Prize quality material -- in our never-humble estimation.

Comments are invited as always.