The last 6 months of 2008 will be marked as a turning point in America’s history and its status as an economic superpower. The real estate crash could have been contained had it not been for Wall Street’s unethical packaging of questionable home loans. Those loans were resold to other banks and governments as secure, rated investments. As housing prices corrected in the US, which does occur occasionally, those multi-trillion dollar investments became suspect. Once banks and investors lost confidence in these shaky loan packages, they were effectively worthless. No one wanted to buy them or guarantee them. Trillions of dollars evaporated overnight.  As a result, the global financial system was severely damaged and the world economy nearly collapsed. Someday it will be revealed how near the brink Wall Street pushed us for the sake of a sales commission.

The George W. Bush administration and Congress acted swiftly (pork-barreling nothwithstanding) to shore up the American side of the ledger sheet. Whether the initial $1 trillion was well spent is a matter for economists to debate. It provided a badly needed confidence-booster  and signaled to the world that America would attempt to clean up its mistakes. Since September 2008, trillions more have been pumped into the financial system. As of January 2008 that number stands at approximately $7 trillion. Just to provide some perspective: At 3% interest, that $7 trillion demands almost $1 billion in interest payments per day. At 1% interest, it will take almost a 1,000 years to pay off the debt based on our government’s past performance for loan repayment. America had already piled up $40 trillion in national debt before this most recent debacle.

Given the gravity of the situation and the magnitude of the destruction, it’s outrageous that no one’s been arrested, investigated or even pilloried in the press. Of course, Bush administration officials have been grilled endlessly, but what about the clowns on Wall Street who created this mess? What about Obama’s housing advisor Franklin Raines, who was a key player in the mortgage meltdown as CEO of Fannie Mae? The press has diverted attention away from the people who created this mess to an intense scrutiny of the people trying to clean it up.

What gets lost in all the noise is the hard fact that someone’s going to have to pay down this debt. It doesn’t appear that Wall Street honchos are going to cough up a nickel. Franklin Raines isn’t going to return his $45 million bonus. That leaves average working Americans to pick up the tab. That means a century or more of diminished economic growth, personal opportunity and personal wealth. It means more taxes, more inflation, a drop in the dollar’s value and a drop in our standard of living. And, adding insult to injury, Barack Obama wants to add an astounding 600,000 new government employees to the federal payroll. That’s insane. With pensions and benefits, it instantly adds another trillion dollars to this year’s federal budget, which is already a trillion in the hole. And it adds another trillion every year going forward forever. At what point do the wheels come off this gravy train? It appears that the only thing that can stop our government from spending money it doesn’t have is for the rest of the world to push our government into bankruptcy. And even then, our politicians and bureaucrats won’t be suffering one bit. That will be left to the taxpayer.

Bernie Madoff exemplifies the prevailing ethic on Wall Street - investors are merely marks. It’s all about the transaction, protecting the transaction and making money from the transaction, investor be damned. Madoff went a bit further than the average broker or manager.  But, the losses that his investors bear are a trifling compared to the trillions eradicated in the mortgage-backed securities catastrophe engineered by so-called ‘legitimate’ players like Bear Stearns and Lehman Bros. Who’s the greater evil?

Bernie Madoff was well protected. No one, not even the SEC, could touch him. His clout with regulatory agencies was considerable and he worked his connections effectively. What brought the Madoff operation down wasn’t the investigatory zeal of any governmental agency, it was the collapsing stock market and the inevitable run to redemptions. But then, the big investment bankers, broker/dealers and bank holding companies were equally well protected and well connected. Madoff is a parasite. But that characterization can be applied to much of Wall Street and the banking industry given the awful mess they alone created and the way they’re now conducting themselves with taxpayers’ bailout money.

In that context, Bernie Madoff is not unusual in many respects. He is the logical extension of the largely unethical practices that make up too much of the day-to-day activities on Wall Street. What goes on has been dressed up in many guises, but it’s all the same. It’s the transaction - whether the investor makes money or loses money is immaterial. The broker-dealer, the underwriter, the investment banker or the adviser is focused only on the transaction itself. It’s the transaction that creates revenue. Everything else is eyewash.

Given the stupendous disaster created by mortgage-backed securities, no one seems to remember the mutual fund scandal and the hedge fund improprieties of just a few years ago. And before that, it was the derivatives scandal, preceded by the collapse of Long Term Capital Management. There has been an endless procession of financial chicanery stretching back 100-plus years. But, everyone does forget, and Wall Street counts on it. Eventually, the sheep forget about the wolves and go back to grazing. The hunt begins anew.

The size, scope and sheer audacity of the improprieties are expanding. There’s not even a pretense of transparency or accountability. Even pretending to be ethical and aboveboard has become inconvenient and boring for some of the players involved. To Wall Street, the rest of America are just marks, nothing more. Bernie Madoff just took it one step further.

The Obama administration, not yet fully installed, is already calling for radical changes to what it brazenly characterizes as the ‘failure’ of free-market capitalism. Given their way, Obama and his handlers would institute FDR-era programs liberally mixed with Johnson-era social engineering and the hopeless, self-limiting ideology of the Jimmy Carter era. This toxic cocktail would be forced down the throats of every American, even those who believe that bigger government is not the answer, and that we should rely on our own ingenuity and hard work to get out of the current economic disaster.

There is no doubt that Wall Street screwed up. Their greed and avarice blinded them to the enormous risks they were peddling to banks, investors, pensions and governments. It’s incredible that the CEOs and chairmen of Lehman Bros., Merrill, Bear Stearns and other big investment houses didn’t fully understand what was going on inside their own firms. Apparently, the need for transparency goes much deeper - into the very innards of these organizations. It’s strange that there are no arrests, no indictments and no large-scale investigations of the mortgage meltdown, the credit squeeze and the resulting economic catastrophe.

It doesn’t take a financial wizard to observe that mortgage-backed securities were created from pools of shaky borrowers, given an unrealistic rating and then sold around the world as investment-grade instruments. What’s even more difficult to imagine is that the same people who created these toxic securities bought them for their own accounts. Once again, it doesn’t take a wizard to observe that the executives didn’t know what people in their own organization were actually doing. Given these simple observations, one can only conclude that Wall Street executives taking home billions of dollars had no idea what they were doing, or just didn’t give a damn.

The alternative explanation is even more unsettling. One can also postulate that Wall Street execs understood fully what was going on. They understood fully the risks to the world’s markets and the potential damage to the American economy. But, they were making billions of dollars and their greed blinded them to the inevitable consequences.

Does this make free-market capitalism a failure? No. The basic concept is still the best possible system ever devised. But, it does bring into question the quality and scope of enforcing laws and regulations as they apply to Wall Street, banking and lending. There is also the matter of whether corruption, graft and influence peddling has compromised oversight and enforcement. This isn’t a Republican or a Democratic problem. It wasn’t created exclusively by either party or during any one administration. This is the result of a general erosion in ethics and personal responsibility. Wall Street is merely the canary in the coal mine.