In our special briefing, we look at how near Wall Street came to systemic collapse this week-and how the financial system will change as a result. We start with how financiers-and their critics-have laboured under a delusion ‘A COMPANY for carrying out an undertaking of great advantage, but nobody to know what it is.’ This lure for the South Sea Company, published in 1720, has a whiff of the 21st century about it. Modern finance has promised miracles, seduced the brilliant and the greedy-and wrought destruction. Alan Greenspan, formerly chairman of the Federal Reserve, said in 2005 that ‘increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago.’ Tell that to Bear Stearns, Wall Street’s fifth-largest investment bank, the most spectacular corporate casualty so far of the credit crisis. For the critics of modern finance, Bear’s swift end on March 16th was the inevitable consequence of the laissez-faire philosophy that allowed financial services to innovate and spread almost unchecked. This has created a complex, interdependent system prone to conflicts of interest. Fraud has been rampant in the sale of […]