On Thin Ice, Together

The Wall Street meltdown leaves us all vulnerable and culpable.

Unless you've been under a rock (or a hurricane) the last three days, you know about Wall Street's meltdown. What many people don't get is exactly what impact it might have on their personal finances. That's understandable since it's easier to believe that what happens to rich investment bankers is unrelated to our own efforts to keep a decent gig, pay the bills and stash at least a little sum'n away.

The problem is we can't afford to ignore it anymore, and that's precisely because we as consumers and taxpayers ignored Wall Street's problems and excesses for too long. In fact, we've been partners in building Wall Street's house of cards, which, just like the real-world housing market, is tumbling brick-by-painful-brick.

But first: You want to know just what's going on and how much of your cash, if any, is at risk. A quick refresher: Last weekend, the investment bank Lehman Bros. couldn't raise the billions of dollars it needed to stay afloat, so after the government refused to bail it out with our tax dollars, Lehman was forced to file for Chapter 11 bankruptcy protection on Monday. If you weren't a Lehman Bros. shareholder—and why was anyone, given that the stock dropped from $66 a share to $3.65 in just seven months—you might wonder why you should care.

Just ask my friend who was trying to borrow money to finish up her business degree. She got a call from the bank yesterday saying no deal, we just can't make any loans at this time.

The simple fact is the failure of a major investment bank is a big deal to all of us in an economy struggling for any signs of life. Lehman Bros. reported $639 billion in total assets in its bankruptcy filing, making it the biggest company in U.S. history to go belly up.

And what were those assets? At least $60 billion of them were a portfolio of mortgage-backed securities, Wall Street shorthand for very, very bad bets on the value of home mortgages, which we all know have been over inflated for years.

What Lehman did was the equivalent of betting against the Patriots in the Super Bowl (except for last year), then losing and doubling down again, then seeking loans from friends and family to pay its bookie before the leg breakers showed up. Those losing bets were being placed by nearly every major player in our financial system: Merrill Lynch, which has lost 68 percent of its value this year and on Monday sold itself to Bank of America for pennies on the dollar; AIG, which lost 79 percent of its value this year and is teetering near collapse; Fannie Mae and Freddie Mac, backers of half the mortgages in the U.S., which had to be taken over by the government just weeks ago; and the beat goes on.

Which brings me back to the consumers and taxpayers now shaking our heads at Wall Street's behavior. That's pretty much like trash-talking the adulterer you just rolled out of bed with.

We were the ones buying houses we couldn't afford on terms we didn't understand, then refinancing them to get cash for big-screen TVs. When the mortgage payments ballooned, we were the ones trying to hustle the crib to some other fool, only he couldn't borrow any more money from banks that were only lending Wall Street's money against the over-inflated value of the house we couldn't afford anyway.

Anyone hear the leg breakers knocking?

We save less than we spend then agonize over the cost of health care, food and gas. We'll still be lined up at the mall with our credit cards this holiday shopping season, after bitching all year about Wall Street and gas prices and mortgages and health care and that Bush guy, whose economic stimulus checks we also blew at the mall.

But don't let me sound preachy. I'm a business reporter and personal finance blogger with six grand in credit-card debt. How's that for irony?

The point is all of us are as culpable as the gray-haired, rich white guys we see on TV and like to blame for bringing the country to the brink of financial ruin (if we're not already there).

If you think Lehman Bros.' bankruptcy, or Merrill Lynch's sale or another interest rate cut or government bailout is the forgiveness that will allow us, as consumers, to keep up our own financial antics without repentance, call me. I've got a great deal on some bundled mortgages I'd like to sell ya.

Keith Reed is a writer living in Ohio.