too much money

The more I think about the financial crisis, the more one thing puzzles me: there seems to be too much money on Wall Street. Why were people pouring billions into sub-prime mortgages, or securities backed by them? Because, it seems, they couldn't think of anything better to do with their money than lend it to people who couldn't pay it back. I remember reading, during the late 1990s stock run-up, that some investors had pulled all their money out of the market and were letting it sit in very low interest accounts because they couldn't find any investments worth buying.

Think about this. It is the basic mantra of modern economics that everything depends on investment. Economic growth is created by investment, so it is essentially limited by how much money there is to invest. Whenever economic times in America get bad, economists are all over the place saying that we need to raise our savings rate so there is more money to invest. But that doesn't seem to be our situation at all. Our situation seems to be that Wall Street guys are spending all their time dreaming up more and more exotic financial instruments because there aren't any growing companies or new technologies worth putting their money into.

At the moment people pulling money out of stocks and other places have put so much into US government bonds that the effective interest rate is down to 0.4%. Surely there is some businessman in the world, or some worthwhile project, that would offer a better return than that.

Is the problem that there just really aren't any investments worth making out there, or is it that Wall Street guys are too lazy to figure out what they are?