There’s nothing like greed and avarice to bring the entire U.S. financial system to the brink of collapse.

With the demise of Merrill Lynch & Co. Inc. (MER), the thundering herd has galloped off the cliff – taking 94 years of history with it. Same, too, with Lehman Brothers Holdings Inc. (OTC: LEHMQ). Lehman’s bankruptcy filing last week caps 158 years of solid history. No doubt they’ll be others with American International Group Inc. (AIG) spreading the credit-default-swap contagion like a financial Typhoid Mary.

But you know what?

I’m sick and tired of hearing how “we” caused this … how, according to the mainstream media, “we” somehow did this to our financial system.

Baloney.

For the most part, “we” didn’t do squat. The average American had nothing to do with this. For the most part, “we” pay our taxes, “we” pay our credit card debt and “we” pay our mortgages – on time, and in full.

Sign up below… and we’ll send you a new investment report for free: “The Three Best Investments in Asia.”

And now “we” are stuck with nearly $10 billion in debt “we” didn’t ask for (a tab that’s clearly going to escalate).

No doubt we’re going to get a whole lot of e-mail reminding us that we’re a nation of gluttonous consumers and serial spendthrifts.

So let me head those e-mails off at the pass and answer those allegations right now: Yes, you are correct … “we” are all of those things.

But let’s remember one very important point: The vast majority of the credit problems we’re dealing with right now stem primarily from two areas:

• Institutional greed.
• And a near total lack of individual responsibility to live within our means.

There’s no question that the institutions (both corporate and government) deserve the lion’s share of the blame here. At a time when the government perpetuated artificially low rates, it also cleverly created new financial instruments to get the yields it was looking for (absent government paper that would achieve the very same objective) and went merrily on its way). Wall Street was only too happy to leverage the proceeds. And the rest, as they say, is history.

But what really burns me up is that our regulators either ignored the problem – despite repeated warnings – or refused to do anything about it.

Or both.

You heard it here first: We’ll get to see just how many warnings were proffered as the blizzard of lawsuits that are being assembled even now finally make it to court.

Two of the most notable instances where a different action could have led to a different outcome were:

• Former Federal Reserve Chairman Alan Greenspan’s refusal to crack down on questionable lending practices – despite being given explicit Congressional authority to do so in 1994.
• And the reality that Freddie Mac (FRE) Chief Executive Officer Richard Syron was repeatedly warned that financing questionable loans threatened not only Freddie’s financial health, but the nation’s, too, as early as 2004, The New York Times reported. That placed the U.S. economy in an incredibly precarious position. Indeed, fears that foreign central banks in China, Japan, Europe, the Middle East and Russia might stop buying our bonds forced the federal government to bail out both Freddie Mac and Fannie Mae (FNM). [For all the details on these deals, look at the Money Morning report: Foreign Bondholders - and not the U.S. Mortgage Market - Drove the Fannie/Freddie Bailout].

Essentially given free reign, institutions dealing with consumer credit began offering gobs of credit not to their best customers, but to their worst. Credit card companies like Advanta Corp. (ADVNB), for instance, spent millions on sophisticated computer models that sorted every bit of data on prospective customers with an emphasis on those who would run up the biggest balances.

Ideally, they wanted those balances to be paid back so they ostensibly targeted affluent customers, but in a twist of fate, wound up with a “reverse” emphasis on low-income customers who would generate the highest fees and, by implication, the highest revenue.

Talk about predatory lending … while there are laws against this sort of thing in the United States, they’re tough to prosecute and even tougher to stop. The reason: These companies systematically structure loans in such a way that it is appealing for borrowers to sign up for the credit lines, and yet it’s virtually impossible to defend against.

And it doesn’t help that the advertisers go right along playing on our most basic of all human emotions – desire.

This was a model that quickly found its way into the home-mortgage-lending business – almost unchanged. So-called “liar loans” requiring no documentation became all the rage because of the fees they generated for participants at every step of the way from the loan officers to the Wall Street houses where loans were packaged and then sold. As did adjustable-rate mortgages, interest-only schedules and all sorts of other variations.

But all of that is really academic.

Somewhere along the way, the concept of personal responsibility died in this country and is probably buried right next to common sense.

Yes, there were predatory lending practices. Yes, there were huge corporations deliberately skirting the rules to pack on billions in additional profits. But at some point, people had to sign on the dotted line.

While I truly feel sorry for the people who honestly didn’t know better, or for whom there was no other option, I cannot extend my sympathies to others like my neighbor who spent through his home equity to buy a Hummer, a new boat, two jet skis, and a lavish European vacation.

He’s now about to lose his toys – and his home – not to mention his marriage.

Nor can I extend my sympathies to the modern robber barons like the corporate chieftains of Fannie, Freddie and the other bailout candidates – who pocketed millions while shareholders lost billions.

I don’t see any of these guys offering to return their bonuses, or to forgo their “golden parachute” severance packages, to help their former employers pay off the debts they helped these companies accrue. And forget about them reimbursing the U.S. taxpayers, who are stuck with the bill for cleaning up this mess.

No, instead these ex-boardroom warriors are now lying low somewhere in Old Greenwich, out at The Hamptons, or out on their yachts somewhere – until the storm blows over. Then they’ll receive multi-million dollar advances to write so-called “kiss-and-tell” expose books that document the darkest days of the U.S. financial system. Or they’ll go out on the public-speaking circuit – at $100,000 an engagement, or more.

No doubt they’ll frame themselves as victims, or as valiant warriors in the capitalist struggle, positioning themselves as financial innovators whose efforts were hamstrung by circumstance, or just plain misunderstood. Whatever the path they choose, you can bet your final 401(k) dollar they’ll come off as “heroic,” as they detail the all-night meetings, frantic transatlantic phone calls or eleventh-hour negotiations that were part of the attempts they made to bring their companies back from the brink.

That none of these efforts worked … well, in true U.S. fashion, they’ll just say it wasn’t their fault.

The whole situation is unbelievably galling.

What I’d really like to see is a book about how everyday families are making it – or trying to – despite the overwhelming irresponsibility of a very small portion of our population, and some financial-market miscreants, who have saddled the rest of us with $10 trillion in debt.

A book like that would really mean something.

Last 5 posts by Keith Fitz-Gerald

• Market Milestones to Watch for in the Months to Come - November 13th, 2008
• Four Ways to Sidestep the Damage Wall Street’s Big Money Movers are Inflicting on Main Street - October 28th, 2008
• How China is Beating the United States in the Global Oil Game - October 16th, 2008
• Special Credit Crisis Commentary: Don’t Let the Market Rally Steal Your Long-Term Profits - October 14th, 2008
• Credit Crisis Update: Rising LIBOR Hints at Bigger Problems to Come - October 7th, 2008