Martin Wolf of the Financial Times introduced me years ago to the idea that the white-shoes banks (think Goldman Sachs, Morgan Stanley, Deutsche Bank and Credit Swiss) play by different rules than you and me. They privatize gain (taking enormous bonuses when times are good) and socialize loss ( by sticking taxpayers with the bill when their loans or other schemes blow up). This behavior — heads I win, tails you lose — is the subject of two articles in today’s New York Times.
On Page 1, the headline above the fold reads: A Financial Crisis With Little Guilt. Here’s the lead paragraph:
It is a question asked repeatedly across America: why, in the aftermath of a financial mess that generated hundreds of billions in losses, have no high-profile participants in the disaster been prosecuted?
The two-page spread inside quotes William K. Black, the federal government’s director of litigation during the savings-and-loan crsis in the 1980s, now a professor at the University of Missouri:
This is not some evil conspiracy of two guys sitting in a room saying we should let people create crony capitalism and steal with impunity. . . But their policies have created an exceptional criminogenic environment. There were no criminal referrals from the regulators. No fraud working groups. No national task force. There has been no effective punishment of the elites here.
Featured on the front page of the Business Section is a new United States Senate report on the financial crisis. Here’s the nut graph:
The report adds significant new evidence to previously disclosed material showing that a wide swath of the financial industry chose profits over propriety during the mortgage lending spree. It also casts a harsh light on what the report calls regulatory failures, which helped deepen the crisis.
What’s missing is any mention of the legislative branch’s complicity in the financial crisis. Members of congress, after all, constantly pounded the drum for the idea that every American should own a home. Congress repealed the Banking Act of 1933 (aka Glass-Steagall). The repeal effectively put U.S. taxpayers on the hook for the misdeeds of the hot-shot investment banks.
If you are a pessimist or a cynic, you have today what the military might call a target-rich environment. Banks “too big to fail” are even bigger than before financial Armageddon in September 2008. And, for the most part, the same people are in charge of regulatory agencies. Little wonder gold and oil are going through the roof.