Whalen: Mutually Assured Destruction

“Mutually Assured Destruction: The Legacy of Timothy Geithner–and Robert Rubin”. That’s the title of Chris Whalen’s latest IRA piece on the extend-and-pretend policies of both Tim Geither and Robert Rubin. As Whalen carefully details, those bank bailouts may have worked in the short term, but the evidence is pretty clear that the bail-out-the banks-at-all-costs approach is fraught with moral hazard and destructive economic consequences. Whalen shreds the argument that the policies have saved the economy, noting the consequences of government-sponsored fraud at America’s largest financial institutions.

“For some reason, Barack Obama, Andrew Cuomo, Eric Holder and Eric Schneiderman have done as little as possible to pursue the issuers of bad securities on Wall Street. Civil plaintiffs have basically done all of the work required to seek criminal indictments, but the agents of liberal government do nothing. The State of New York, in particular, could bring all of the issuers of subprime securities to their knees using the Martin Act. Yet these liberal Democrats seem entirely willing to let the TBTF banks walk away from blatant acts of securities fraud without any significant challenge. Is this what liberals mean when they talk about “compassion?”

 But no, the real reason that the DOJ does not go after the big banks is the same reason why the Fed has always pandered to the zombie dance queens, namely the overriding concern about the market for Treasury debt. In the minds of Washington’s ministerial class, systemic risk trumps securities fraud — or anything else. The TBTF banks and three or four other players are all that remains of the primary dealer community. Mess with the remaining big banks, so the story goes, and the world really does end.”

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