those responsible should be prosecuted (assuming they broke current laws) and if not, those institutions should be allowed to fail... if not, this charade will be perpetuated for years to come.
What you are missing is that much of it didn't involve actually breaking any laws, because the long reach of Ayn Rand in this country has prevented passing prudent laws regulating commerce.
That is essentially what Greenspan admitted wrt to his "world view" having been slightly incorrect. His "world view" was Ayn Rand's view of hands off market perfection. It is fiction as I said before.
There was nothing illegal with GS encouraging as many bad loans as possible via independent mortgage origination and securitization (which of course they made money off of in the process), and then turning around and placing bets against them with AIG (which are now paying off very nicely, courtesy of you and me backstopping AIG). It should have been, but it was not. The reason it was not, is because Greenspan, and a great many others in the financial system, believed religiously (religion of Ayn), that the financial markets worked best without regulation, or at most, with only minimal regulation.
In fact, when GS couldn't get enough bad mortgages originated, sliced and diced, they just placed synthetic bets against them as well. Again, nothing illegal, because Greenspan thought this financial innovation rather a benefit. His problem is that he failed to understand that "insurance", "hedging", and "conflict of interest" can be rather tangled. Most people think "insurance" is prudent, "hedging" is just complex insurance, and conflict of interest is of course not good. Unfortunately, this was a massive case of "insurance" = "conflict of interest". There should have been rules making that fraud, but unfortunately (again I blame Ayn) there were no such rules.
Of course, some people never learn.
The best way to avoid over regulation of markets is to back prudent regulation to avoid just such a mess as we are in now. Wait and watch what happens with AIG. The story will be well told in the end. The Fed and the counterparties are not going to hide in the long run. |
