All those people who are paid to play WOW lose their jobs, as do the people who play it soley to sell stuff.

There is big buisness and real life jobs in that world.

The problem with your argument is that there is a reason for why the housing prices dropped.  It wasn't some sort of black magic (okay, maybe it was, I don't know what Goldman Sachs has actually been up to behind the scenes), it was a flaw in the banking system.  Banks were going so far as to give loans to people with bad or no credit, sometimes without a credit check, just to move property that they could... get this... sell derivitives of.  These companies would have gone under quickly with their bad business practices, but they were making bank off of their "insurance."  Yes, the simple story is that the collapse of the housing market took down the derivitives market.  But in economics there is no simple story.  Without the mortgage derivitives markets no one could have afforded to take the risks that they did.  The companies that sold bad mortgages intended to keep themselves in business by selling those off to whatever sucker would pay, then eventually they reached a point where there were no buyers so they bought up their own junk or the junk of similar institiutions.  Without the derivitives market there is no housing crash.  There is no drive to sell whatever to whoever, and there is no financial crisis.

Derivitives are perfectly fine financial instruments when used properly.  Leading up to the crisis they were not.  They were used to degrade the standards by which loans were made in order to make more derivtives.  Without the derivitives the loaning standards couldn't be degraded, which means that derivitives cannot be excluded from the equation.  If they can't, Wall Street can't, because Wall Street was where the demand for them came from.  If no one wanted derivitives, they wouldn't be sold, if they weren't sold loan standards couldn't degrade.  The people on Wall Street make their living by researching and understanding the markets they are investing in.  If big investment companies buy into derivitives then they have someone to research their source, they would see that houses are sold to unworthy buyers, they would see that the derivitives were risky, and they'd see that throwing money in that direction came at a high risk.

What would Wall Street do to combat such risks?  Well, they call them credit default swaps.  Another form of derivitive.  Knowing that their competitors were selling junk, they bought it up greedily with the intention of trading back the junk for much more money.  They cut up the original instruments, sold random pieces in large groups, and hope theirs wouldn't fail before anyone else's.  The people who bought them did so hoping that they would.  And they knew that loan standards were rapidly falling apart, meaning that bad loans were guarenteed to occur and that the bets on bad derivitives would pay off for those willing to buy them.

The whole system was cyclical.  Not one part of it could have destroyed the economy without the help of the others.  Whitewashing the impact of one factor or another emits the whole story.  It undermines the systemic nature of the crisis that the American tax payer was asked to bail out on the grounds of systemic risk.  The system was the relationship between all of these factors, and a few others, and they all worked together to make things fall apart.  If the people in control of one backed out, the others would have stopped far short of the damage they dealt.  No one pulled out.  They played chicken, knowing full well that if no one pulled out everyone would be wrecked.  Everyone got wrecked.

Except... that's not why banks were giving those loans out.  See all the government legislation and prodding to increase Homeownership because homeownership is "The American Dream".

It had nothing to do with "greed."   The financial meltdown was much like a Nuclear Meltdown... it took extrodinary circumstances to happen.  It took a nationwide housing bubble crash... which up until it happened is like saying there was going to be lightning strikes in every city in the US at the exact same time.  Even with the housing bubble you weren't expecting them to all simaltaniously crash at once.

I've seen that legislation, as well as who pushed it and who funded their election campaigns.  I've also seen that lending went far beyond what the legislation called for.  The purpose of the legislation you speak of was to raise the status of the underpriveliged to land owners, but the result was that underseving people got dozens of loans without credit to rent property out to the underpriveleged... not to mention financing the sales of extemely expensive property to people who could afford fair property and wanted more.  The market was unregulated because the people who wanted to keep it growing at ridiculous rates wanted it to be so.  They created the extraordinary (note the "a") circumstances because they stood to gain from them.

Again, to ignore the people who stood to make money off of this "business" is to ignore the business itself.  You can't blame a piece of bubble gum for popping without looking at who chewed it.

There is absolutely no honest way to seperate Wall Street from the bust.  I'm not saying they are fully responsible, but they can't be fully exhonerated either.  Saying they weren't a part of the mess is a straight up lie.  Even if they somehow didn't know what would happen, despite the billions they pay to follow such trends, it couldn't have happened without them.  Simple as that.

The greed part comes in when you LEVERAGE off to levels far above what was actually there, and take risks one shouldn't.  Why should a bunch of Wall Street firms all been at risk of going under, unless they did exactly this?  To say, "Well golly gee, extraordinary circumstances can happen, what do you expect me to do about it?"  Well, you prepare for it.  That is what.  The writing was clearly there on the wall.  You saw it as clear as day, that housing prices were rising like 3 times the historic rate above inflation.  Who thought that would be sustainable?  It is bull to say that it wasn't see.  It was there.  To act as a bunch of lemmings and not take caution into consideration, is absurd.  But, you know what?  The acceptable norms pressured people to take more risks, and there was a groupthink blindness that happened.  But, if you do as the GOP members of the committee looking into this want done, you will foster a continued blindness that makes it happen again.

Want to know a real fundamental flaw here?  When you have a collective belief that prices are determined ONLY by what people will pay, that mindset will produce a bubble.  Without there being a baseline of evaluating properly the actual worth of something, prices will keep going up and then blammo, the bubble will pop. And the bubble is built on not normal supply and demand curve measures, where increase prices decrease demand (market supplies for need, not surplus money trying to make a profit), but one where increased prices increased demand.  In light of this, there is a problem.

Heck, even if people know what the actual value of something is, they will STILL end up getting killed in a bubble.  See this episode from Nova "Mind over Money" on an experiment ran where people trade a stock on a fictional market that would go bankrupt in the end, and whose value continued to drop.  Well, it showed over and over, that there was a bubble.  The market had traders playing chicken with one another (it is in the end of the video, chapter 8):

http://video.pbs.org/video/1479100777/

Because there was VERY little risk of it happening.

If Calros Slim comes up to you and says "I have a contract here... if you pull out a coin and flip heads 20 times in a row you owe me 1 Trillion dollars.

If tails comes out just once... you get 1 Trillion dollars.

Who in their right mind is going to say no to that proposition?  It isn't greed that makes you do that... but common sense.

If you have a business, where employees, stockholders, investors, and people who save money at your institution (say a bank) and a single event could wipe you out, do you have it so you have no reserves to count on this?   

Getting hit with a meteor is a very little risk of happening.  Are you telling me that what happened with the financial meltdown was very rare, and that if you did the exact same things, with little oversight, bad quantitivative analysis resulting in flawed mathematical models, and misvaluation of risk, would most likely NOT happen again?

Watch the video, the last part.  What is seen there is bubbles continue to happen, and ruin a lot of people in the process.  It is built into markets.  If that is the case, then how is seen as "very little risk"?  The point is that there IS risk.  Do you think causing people who have their life saving somewhere, that is promised to be secure, losing everything, is a good thing?  If it happens to a large percentage of the population, then what?

The green factor here is going for a TRILLION dollars.  Do you need a TRILLION dollars?  Say the proposition was that you put up $10 in the same thing, if it doesn't happen, and then get a MILLION dollars if it works out.  Would that be greed?  How about $1000 and a BILLION.  If the $1000 would break a person if they lost it, why would that not be greed?

Another thing, in regards to reality, the way things are, you don't know the odds at all.  There isn't the pure coin flip.  There is odds that change and you don't know what they are.  In regards to Carlos Slim, that would be a bad bet, because he doesn't have a trillion dollars.  He couldn't pay.  I know in my case, I lost my 401K going for such a bet.  That was greed on my part. 

Do I need a trillion dollars?  No, does a company that employs that many people?   Yes.  Why would I keep doing this?  Because at the end of the day I'll be out ahead.

This would of never happened, so long as there wasn't a worldwide government bubble that popped at the same time.  Which there wouldn't of been without government prodding, heck even with the prodding the fact that it all happened at once was extremely unlikely.

Ask someone 5 years ago if the housing market could be down in every sector of the US at once, and any expert will tell you no. 

At the end of the day, even after the crash... the economy is ahead of where it was without derivitives

Ask people also, if it is realistic for home housing prices everywhere to go up at a rate that is three times the normal rate, and have it be sustainable forever, or if there would be a correction.  Even if you asked 5 years ago, do you think people would of said "yes" if they were honest? 

That was the fundamental flaw everyone bet on with derivatives and made a problem FAR worse than it would of been normally.  Derivatives are a fuel that can work well, or run you off a cliff, as they had here.  Do you really think a $600 TRILLION derivates market is better for the world than if it wasn't there?

http://www.marketoracle.co.uk/Article20149.html

What happens when your event you say would seldom ever happen does happen?  Problems with quants  is that they result in greater moral hazzards being taken than if you didn't have them.  Overconfidence in outcomes, which is what happened with the recent housing bubble, is a prime example of this.

There would of been corrections for sure.

The corrections weren't expected to be universal at the same time however.  Markets usually collapse seperatly.