Prof. William Black on the AIG-Treasury lover’s quarrel

… can be found at everyone’s favorite econoblog, Naked Capitalism (even though Yves Smith seems to be posting in a part-time capacity, at best, as she works on her book.  I’m a bit disappointed now, but am very excited for the book).

It’s a short read, so I’d recommend jumping over to NC and reading the full post (it’s an excerpt from an e-mail sent from current professor of law and economics at the University of Missouriand former bank regulator William Black.

Prof. Black quickly runs off a list of the major failings of the Treasury in their bailing out of the big FIs so far.  The list of failures isn’t necessarily going to surprise anyone following the ongoing AIG failure – bailout – bailout – bonus – bonus – bailout (in that order, I believe) scandal, but it means a lot to see that those who are clearly qualified to be a major player in regulation feels the same way most of us humble defrauded bystanders feels, and is willing to state so publicly and unequivocally (apparently).

Yves summary of Prof. Black’s point is the kicker though, and something I feel is sorely misunderstood (and it surprises me that Yves doesn’t feel the same way I do, since much of my understanding of the situation comes straight from her blog):

“And to Black’s point, the real issue is fraud. Why is no one at Treasury willing to use the F word? Who would it embarrass? There is not reason for NOT pursuing that angle…”

Actually, I think there is one big, fat, hairy reason not to pursue it as fraud:  It opens the floodgates for every other bonus-paying failed (or near-failed) institution, it adds a Lehman’s-sized free radical into the financial system as every single major FI is probably guilty of similar fraudulent behaviour to some extent (think Merril’s $3.6 billion pre-marital bonus tryst) and could become a target by regulators and a commie socialist ‘Bama presidency, should they have the inclination to bring the hammer and sickle down.

More importantly, I believe, is the political effect:  the public, and the play-to-the-public Congress, won’t discern AIG’s f-bomb from those of Merrill and Financial Institution X.  So next time ‘Bama, Bennie, or Dr. Strangelove wish to rally our esteemed legislators behind a bailout bill, we’ll have a slightly increased number of grandstanding legislators claiming that anything resembling a bailout or stimulus package in the future is further payola to f-bomb-ulent criminals that have brought our economy to the brink.

Really.  How do you propose a bill that might benefit financial institutions (and those are the only bills being offered at the moment) when those same institutions are basically called out by the President as being criminals?  And – at least in the minds of Obama’s team – how do you fix this mess without retaining the option to blow more money on stimulus and bailouts?

… and the cow goes moo