Thursday, December 04, 2008


Megan McArdle:
One of the things that has really surprised me--so far, anyway--is just how little criminal activity we've uncovered during this crisis. There's an old accounting saying, "recessions uncover what auditors can't". Enron, Global Crossing, and MCI were not the only companies that played funny games with their books in the late 1990s. A number of technology companies played games with their books, but were able to grow enough to unwind their chicanery with little more than a slap on the wrist from the SEC. Enron, et al. were simply the ones who got caught short when the music stopped. I don't mean to say that all or most companies were guilty of this, because the overwhelming majority weren't. But the problem wasn't unique to Enron, and had they been able to carry on with it longer, there's every chance that they might have been able to get out of their bad positions and stay solvent.

By contrast, so far the worst misbehavior I've seen has been the two Bear Stearns executives who told people their fund was okay the month before it went belly up. This was a bad thing, and the people who did it no doubt richly deserve the jail terms they are going to get, and then some. But on the scale of dishonesty generally uncovered during recessions, this wouldn't normally rank high enough to trigger more than a "You boys!!!" and a finger-wag.

This probably has something to do with just how tightly regulated financial companies already are; when the SEC wants to know about every transaction you do, it's hard to get too funny with the books. Still, it's pretty impressive.

But no one wants to hear that. Everyone wants a villain: lefties want to hear that it was greedy bankers, or cold-hearted deregulators (or better yet, both!) who are entirely and 100% to blame; conservatives want to hear that it was poor people taking out loans they knew they couldn't pay off, and a pandering government that leaned on companies and the taxpayer to hand those irresponsible wretches free money.

(via The Corner)


OBloodyHell said...

Uh, I think that at least part of the villainy here is just where the Dems won't look, and the GOP is wimping out Yet Again.

The issues with Raines and Gorelick "cooking the books" with Fannie Mae, etc., to render themselves with huge bonuses when they should not have gotten any has been well documented by OFHEO.

And the association between Raines and Barney Frank is also well documented.

But the Dems aren't about to go after one of their own, so the GOP would have to make a serious case and pound on it for a while to force the media to notice, which would force the Dems, esp. given their single-digit approval rating, to act.

And that would require that the current GOP leadership get some cojones, which they've pretty much been lacking in since about 1998.

How do we fire these dumbasses again?

Carl said...

So I gather you don't foresee the "Only Nixon can go to China" scenario for financial markets regulation?