Yeah, accountability and moral hazard for all
"So the key question from Main Street is: where is the accountability? If the average American fails miserably in a business or professional enterprise, there are consequences, e.g., firing or bankruptcy. Up to today, it appeared that those traditional hallmarks of failure did not apply to Wall Street or those who were responsible for regulating Wall Street. " CB Accountability, at Long Last http://roomfordebate.blogs.nytimes.com/2010/04/16/what-goldmans-conduct-reveals/#more-35941 Michael Greenberger is a professor at the University of Maryland School of Law and a former director of trading and markets at the Commodity Futures Trading Commission. If Sept. 15, 2008, the day Lehman Brothers was allowed to fail, marks the Pearl Harbor or widely acknowledged onset of the present Great Recession (in Franklin Roosevelt’s words “a date which shall live in infamy”), April 16, 2010 may be deemed the equivalent of the U.S. victory in the crucial Battle of Midway in 1942 or the day the U.S. neutralized the Japanese fleet. If the fall of Lehman was Pearl Harbor, the S.E.C.’s case against Goldman may be the Battle of Midway — a crucial victory. On April 16, 2010, the S.E.C. announced its enforcement action against Goldman Sachs alleging the improper marketing of what the S.E.C. alleges was the sale of two evenly matched, but highly conflicting, investments: essentially bets for and against the proposition that subprime (non-creditworthy) mortgage borrowers would pay back their loans. Goldman is alleged to have profited substantially from those who bet against subprime repayment while aggressively marketing to its other customers bets in favor of repayment. Let’s be clear. Goldman Sachs vigorously denies the S.E.C.’s allegations, and doubtless it will fight the action with the utmost vigor. It is certainly entitled to do so. However, what makes the S.E.C. enforcement action a landmark is that it responds to a widely held desire on the part of the American taxpayer: accountability. The underpinnings of that desire is that the present crisis, including high unemployment and devastating economic insecurity accompanied by skyrocketing deficits, was not caused by the average American. But, it is the average American who has had to foot the bill for restoring the economy. What is especially aggravating is that those who unmistakably did cause the crisis, i.e., the “pillars of Wall Street,” are now stronger and more profitable than ever before. And the impression is that Wall Street has returned to “business as usual,” once again using the same investment strategies that brought on the fall 2008 deluge. The case against Goldman shows that savvy insiders knew the financial crisis was coming, and profited from it. So the key question from Main Street is: where is the accountability? If the average American fails miserably in a business or professional enterprise, there are consequences, e.g., firing or bankruptcy. Up to today, it appeared that those traditional hallmarks of failure did not apply to Wall Street or those who were responsible for regulating Wall Street. Just last week, Alan Greenspan, the former Fed chairman, and Robert Rubin, the former Treasury Secretary and Citigroup officer, said they were not to blame for the meltdown even though both prevented regulation of the kind of bets Goldman Sachs is now accused of misusing. More galling is the constant refrain from both Wall Street C.E.O.s and former regulators that no one could have predicted the crisis. However, the S.E.C. allegations are premised on the fact that hedge funds and Goldman Sachs itself were so convinced of cataclysmic failure that they were looking for investment vehicles that would profit each time a homeowner defaulted on his or her mortgage. In other words, there were competent and smart people making billions because they could foresee the obvious: people with poor credit would not be able to repay their home loans. In short, it was not that no one knew. Savvy insiders knew. We do not know the success of the S.E.C.s actions today. But, if successful, you can be sure that this will be the beginning of what those average Americans suffering during this Great Recession are desperately seeking: accountability. As Winston Churchill said after early Allied victories in World War II: “This is not the end or even the beginning of the end; but it is the end of the beginning.” We may now be at the beginning of rewarding competence and sanctioning ineptness or worse. _______________________________________________ Marxism-Thaxis mailing list Marxism-Thaxis@lists.econ.utah.edu To change your options or unsubscribe go to: http://lists.econ.utah.edu/mailman/listinfo/marxism-thaxis
