Excerpted from 'The Great American Stickup'

"It Was the Economy, Stupid"

"How did this happen?" ~ President George W. Bush

"It was a humbling question for someone from the financial sector to be asked--after all, we were the ones responsible." ~ Treasury Secretary Henry M. Paulson Jr., former Goldman Sachs CEO

They did it.

Yes, there is a "they": the captains of finance, their lobbyists, and allies among leading politicians of both parties, who together destroyed an American regulatory system that had been functioning splendidly for most of the six decades since it was enacted in the 1930s.

The big cop-out in much of what has been written about the banking meltdown has been the argument by those most complicit that there was "enough blame to go around" and that no institution or individual should be singled out for accountability. "How could we have known?" is the refrain of those who continue to pose as all-knowing experts. "Everybody made mistakes," they say.

Nonsense. This was a giant hustle that served the richest of the rich and left the rest of us holding the bag, a life-altering game of musical chairs in which the American public was the one forced out. Worst of all, legislators from both political parties we elect and pay to protect our interests from the pirates who assaulted us instead changed our laws to enable them.

The most pathetic of excuses is the one provided by Robert Rubin, who fathered "Rubinomics," the economy policy of President Clinton's two-term administration: The economy ran into a "perfect storm," a combination of unforeseen but disastrously interrelated events. This rationalization is all too readily accepted by the mass media, which is not surprising, given that it neatly absolves the majority of business reporters and editors who had missed the story for years until it was too late.

The facts are otherwise. It is not conspiratorial but rather accurate to suggest that blame can be assigned to those who consciously developed and implemented a policy of radical financial deregulation that led to a global recession. As President Clinton's Treasury secretary, Rubin, the former cochair of Goldman Sachs, led the fight to free the financial markets from regulation and then went on to a $15-million-a-year job with Citigroup, the company that had most energetically lobbied for that deregulation. He should remember the line from the old cartoon strip Pogo: "We have met the enemy and he is us."

For it was this Wall Street and Democratic Party darling, along with his clique of economist super-friends -- Alan Greenspan, Lawrence Summers, and a few others -- who inflated a giant real estate bubble by purposely not regulating the derivatives market, resulting in oceans of money that was poured into bad loans sold as safe investments. In the process, they not only caused an avalanche of pain and misery when the bubble inevitably burst but also shredded the good reputation of the American banking system nurtured since the Great Depression.

If we accept a broad dispersal of blame or a sense of inevitability -- or simply ignore the details, since they can be so confusing -- we lose the opportunity to rearrange our institutions to prevent such disasters from happening again.

That this is true has only been reinforced by the tentative response of the Obama administration in its first year. Even after a crash that economists agree is the biggest since the granddaddy of 1929, the president's proposed reform legislation stops far short of reintroducing the kind of regulation of the markets that prevented such disasters in the intervening eighty years. We still see a persistent fear, stoked by the same folks that led us into this abyss, that regulation and scrutiny will kill the golden goose of Wall Street profits and, by extension, U.S. prosperity.

If we as a people learn anything from this crash, however, it should be that there are no adults watching the store, only a tiny elite of self-interested multimillionaires and billionaires making decisions for the rest of us. As long as we cede that power to them, we can expect to continue getting bilked.

Three key myths consistently propagated about the financial markets proved devastating in this event. The first is that buyers and sellers are all logical and well informed about what they are doing, so the markets will always be "corrected" to provide accurate price values. The second is that whatever happens in these "free markets," the general public will not be hurt -- only irresponsible gamblers will lose their shirts. The third is that whenever the government gets involved, it will only screw things up; even if regulators only ask questions, it will poison the pond and spook the fish, to everybody's detriment.

All of these assumptions were proven false; the brave new world order of super-rational high-tech derivative marketing based on a Nobel Prize-winning mathematical model turned out to be a prescription for financial madness. A win-win system too good to be true turned out to be a cruel hoax in which most suffered terribly -- and not just that majority of the world's population that suffers from the whims of the market, but even some who designed and sold the new financial gimmicks. Left to their own devices, freed of rational regulatory restraint by an army of lobbyists and the politicians who serve them, one after another of the very top financial conglomerates imploded from the weight of their uncontrolled greed. Or would have imploded, as in the examples of Citigroup and AIG, if the government had not used taxpayer dollars to bail out those "too big to fail" conglomerates.

Along the way, these companies -- including the privatized quasi-governmental Fannie Mae and Freddie Mac monstrosities -- were exposed as poorly run juggernauts, with top executives having embarrassingly little grasp of the chicanery and risk taking that was bolstering their bottom-lines. Worst of all, damage from this economic chain reaction didn't, of course, stop at the bank accounts of Saudi investors or American CEOs but led to soaring unemployment and federal debt, the acceleration of the home foreclosure epidemic, massive unemployment, and the wholesale destruction of pension plans and state education budgets.

