The question on Wall Street in the wake of the latest meltdowns in the U.S. financial sector is "Who's next?" The more important issue is not which of the major banks or investment firms will follow Lehman Brothers into bankruptcy or Merrill Lynch into fire sale. Rather, the question should be "What's next?"
After all, the problem afflicting so much of the U.S. capital markets - and, therefore, those around the world - is not one of individual corporations hitting a rough patch and requiring bail-outs from the federal government or the private sector. It is, instead, the result of a reckless disregard for sound investing practices in the unscrupulous pursuit of profit. In a word, the last "what" was "subprime."
As we all know by now, the practice of building financial houses of cards on various investment instruments based in nontransparent and problematic subprime mortgage-backed securities was a formula for disaster. It induced firms that not only should have known better but are required to behave better to perform unconscionably. In the process, they violated industry standards and government regulations with respect to transparency, disclosure, due diligence, good governance and accountability.