It’s worth revisiting this Times story from Sunday that spells out just how much the pending financial-reform legislation relies on tough regulators to interpret how to enforce the law rather than telling them how to do it.
Story and Morgenson clearly show the pitfalls of that. They show how the government licked the banks’ boots at a time when the bankers were reeling—with no leverage. What do you think these internal discussions look like in better times, when the bankers are in full-steam-ahead mode?
— Further Reading:
Goldman’s Backdoor Bailout: A call for transparency in the taxpayer rescue of Wall Street
The Press Angle of the Fed’s Backdoor-Bailout Cover-up: Geithner’s New York Fed responded to a FOIA by withholding more information
Audit Interview: Gretchen Morgenson. “You’ve got to keep hammering”
Audit Interview: Mark Pittman. “This is a defining moment for business journalism and for Wall Street.”
Bloomberg on AIG as Banks’ Backdoor Bailout
The New York Times’s Devastating Goldman Piece: Morgenson and Story unload on the bank’s conflicted business model
First, I think it's a good thing that all this is coming to light. As taxpayers we deserve to know how our money is spent and what choices were made by our elected kingmakers.
However. the obvious rejoinder is that opening up the AIG payments to haircuts or legal uncertainty of any kind would have called them into question, thus further destabilizing the markets at a time of crisis. Once you introduce anything less than 100% guaranteed payments, you also open the door to the political process and all the uncertainty that entails. Given the flight to quality at the time the market's thinking was binary; either banks will get 100% of their obligations from AIG, or very possibly nothing. You only need to loo at how political the AIG bonuses became to see the nightmare that would occur if the possibility of legal redress were left open.
Again, I'm not saying any of this is fair, just that it was very possibly a necessary given the state of the alternatives.
#1 Posted by JLD, CJR on Wed 30 Jun 2010 at 11:06 PM