Wall Street has changed beyond recognition over the last couple of weeks. As of today not one of the “big five” independent investment banks is left standing. According to Bill Bonner in The Daily Reckoning, the big banks have only themselves to blame. They began to believe they were invincible… but of course they were nothing of the sort.

This from The Daily Reckoning

Dick Fuld must have felt pretty dumb. His firm had survived the Civil War, the Railroad Bankruptcies of the late 19th century, the Bankers’ Panic of 1907, the Crash of ‘29, the Great Depression, WWII, the Cold War; Lehman Bros. (NYSE:LEH) had outlasted spats, prohibition and disco music. But it couldn’t keep its head through the biggest financial boom in history.

And now the heads roll on Wall Street. James Cayne at Bear Stearns. Stanley O’Neal at Merrill Lynch (NYSE:MER). Charles Prince of Citigroup (NYSE:C). But who’s the dumbest? Surely Dan Mudd and Dick Syron at Fannie (NYSE:FNM) and Freddie (NYSE:FRE) are still in the running. Even with the deck stacked in their favor, they couldn’t stay in the game. And let’s not forget the rescuers - Ben Bernanke and Hank Paulson. They’ve practically nationalized not only America’s mortgage industry…but, taking an 80% stake in AIG (NYSE:AIG), the insurance industry too! Where does the money come from? It’s borrowed too - hundreds of billions worth. Surely, there’s a guillotine waiting for them somewhere.

The last 15 years have been too kind to finance. Wall Street and the City are essentially debt mongers; and in the boom, nobody didn’t want to borrow. Financial profits soared. Since 1980 the profits of the U.S. financial sector as a portion of GDP have gone up 200%. Industry owners and managers could have taken their money off the table and retired to Greenwich. But on the back of this outsize success grew a monstrous hump of self-delusion; the masters of the universe began to believe their own grotesque guff. The financial markets were perfect, said the academics. All-knowing and all-seeing, they wouldn’t make a mistake. And the chiefs at the big financial firm must have thought they supped with the gods themselves; they had the paychecks to prove it.

Of course, some Wall Street bosses were more cunning than others. In selling itself to Bank of America (NYSE:BAC), for example, Merrill Lynch dodges the scaffold; but it becomes a ward of the state, almost like Fannie and Freddie before they were kidnapped outright. Bank of America has easy access to Fed funds; Merrill figures it might need more money too.

The old regime on Wall Street was dominated by just five large investment companies. But the more they talked their own books, they more they came to think it was true - they were all too big, too smart and too rich to fail. Not only did they package and sell explosive packages of debt; they put the stuff in their own vaults too. Now, Lehman (NYSE:LEH), Bear, and Merrill have blown themselves up.

Source: The Dumbest Man in America