There are essentially two ways to make money on Wall Street. The first—let's call it the old-fashioned way—is to match people who have money with people who can use it to make or do something. This is how Wall Street really earns its money. By facilitating investment and diversifying risk, the finance sector adds enormous value to the overall economy. When it ceases to perform this function and credit dries up—as it partially has in this recession—the economy grinds almost to a halt. As galling as it was to have to bail Wall Street out, if we hadn't, we would have found out just how vital what Wall Street does is to the economy.

The second way to make money is to inflate the value of something without adding any real value. Instead of betting on which investments are likely to yield the highest return, you gamble on which are likely to attract other investors. Because even if nothing of value is created the price of an asset can go up. All that has to change is our collective estimate of its value. While bubbles are often called "irrational" because they don't reflect any real change in the value of the asset, it isn't necessarily irrational to invest in something that's inflated this way. You can get rich doing it—provided you get out before the bubble bursts.

Bubbles are the market equivalent of Ponzi schemes, although they are generally as much the product of collective enthusiasm as of out-and-out fraud. In Ponzi schemes—like the one Bernie Madoff used to bilk investors out of billions of dollars—no money is actually invested. Instead, money from people who buy into the scheme later is used to pay off the "investments" of the people who buy into it earlier. Because no money is actually made—it's only shifted from one person to another—such schemes are unsustainable. When there is no one left to bring into the scheme, it collapses. Market bubbles work essentially the same way. Fortunes are made as the bubble inflates, but since not much of value is being produced the bubble can't keep growing forever. Without a continuing supply of fresh money the it collapses, and whoever is left in the market takes a financial beating.

Until the 1990s, the financial industry never made more than 20% of domestic corporate profits. But in this decade that figure rose to a staggering 41%. It's hard to argue that the financial sector ever actually accounted for that much of our national value-added. Instead, these new profits were earned largely on paper, an artifact of the inflated prices of financial instruments like mortgage-backed securities. The industry was playing a zero-sum game, gambling pure and simple. Much of the apparent growth of our financial sector, in other words—much like in the dot-com bubble of the 1990s—was an illusion created by the money pouring into Wall Street.