The collapse of housing eight years later followed the same pattern, but the bubble in terms of actual dollars was far bigger and the collapse of greater consequence. Six to seven trillion dollars of new mortgages had been written that decade; mortgage debt was now much greater in total than federal debt. Wall Street firms learned how to raise capital for new mortgages around the world by creating attractive securities that in fact disguised the real risk of the mortgages. The major banking firms not only "securitized" these mortgages but had consumer loan subsidiaries that wrote subprime and other risky mortgages aggressively. Citigroup was every bit as aggressive at originating subprime mortgages as was Countrywide; Bear Stearns, Lehman, Merrill, and JPMorgan Chase had subsidiaries that were subprime leaders as well.

For all these endeavors, Wall Street professionals got fabulously rich. They channeled hundreds of billions of dollars into wasteful investments that could have been spent on energy, transportation, and communications infrastructure, health care and medical research, education, technical and business R&D, and new, truly innovative consumer products and business equipment. The question was not whether Wall Street bankers contributed enough to the economy to warrant their compensations, but how much they cost the economy in the damage done.

Excerpted from Age of Greed by Jeff Madrick. Copyright © 2011 by Jeff Madrick. Excerpted by permission of Knopf, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.