Greedy Until Proven Guilty and the Power of Patronage

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carl-levin.jpgThe Economist has a fair take on the Goldman Sachs show trial currently underway in Washington. Its "hed" and "dek" say it all: "Greedy Until Proven Guilty. There is a difference between self-interest and breaking the law."

It concludes thusly: "Some of Goldman’s links with the government were uncomfortably close. But the real story of this financial crisis, like many others, was not about one firm but near universal risk-taking, stupidity—and possibly widespread fraud." (Oh, that's a photo of Demagogue Carl Levin, chair of the U.S. Senate Permanent Subcommittee on Investigations, who held forth this morning at the hearing on the financial crisis, asking Goldman employees why they offer clients "shitty deals.")

(Yep, Levin cussed on air.) That bit, about the widespread fraud, is the important part. No one likes short sellers --- the mob prefers government and quasi-government agencies that inflate bubbles with stupid regulations aimed at buying votes and pumping the economy with liquidity than they do those who ferret out such bubbles.

Mark A. Calabria, director of financial-regulation studies at the Cato Institute, wrote a scathing critique of Senator Chris Dodd's (D-CT) financial reform bill. Calabria, who worked for HUD during W.'s administration, says the bill is nothing but a carve-out of exceptions and loopholes for cronie companies, such as insurance companies, realestate agents, Fannie Mae and Freddie Mac, the Farm Credit System and others. Appearing in the New York Post today, Calabria says the bill actually rolls back some current consumer protection provisions and basically would exclude from regulatory oversight anything but a bank holding company.

"That's no minor oversight, because insurance companies, like AIG, tend to have thrift charters rather than bank charters. So, as the bill stands now, AIG and other insurers that accepted massive bailout funds, such as The Hartford, would not be utomatically covered. That's a head-scratcher only if you forget that most insurance companies reside in Dodd's home state, Connecticut."

He poses this question: "President Obama proclaimed in his finger-wagging at Cooper Union last week that 'unless your business model depends on bilking people, there is little to fear from these rules.' If that's true, then I ask the president: Why not apply these rules to everyone?"

Touche, Mr. Calabria. The country is going to continue down its path of crony capitalism and socialized losses, where influence and patronage will continue to stick it to the little guy. As Calabria says, why not just make up some rules and apply them to all financial companies?

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