Interviewed in prison, Bernie Madoff asserted that banks and hedge funds were “complicit” in his elaborate fraud. Diana Henriques, writing in the NY Times, 2/15/11, (here) said ”Madoff described as ‘willful blindness’ their failure to examine discrepancies between his regulatory filings and other information,” Quoting Madoff, “They had to know. But the attitude was sort of, ‘If you’re doing something wrong, we don’t want to know.’ ”
Look at this in the context of the the Financial Crisis. The bi-partisan committee on the financial crisis, FiscalCommission.Gov, released its findings on Thursday, 27, January, 2011. The Commission, I think, got this one right. The financial crisis could have been avoided. This thirty-year economic experiment in de-regulation, which started under President Reagan, has proven that self-regulation doesn’t work; the government must regulate the financial industry. The foxes can’t guard the henhouse.
Just as with the State of the Union Address, Tuesday, January 25, 2011, there were two Republican responses, a dissent from the official findings, and a dissent from the dissent. The dissent, by three of the four Republicans, stated that “There was a financial crisis in Europe, it’s therefore normal.” The dissent from the dissent, given by Peter Wallison of the American Enterprise Institute, and a “Thought Leader” for the Tea Party, blamed the crisis on government regulation, and said the government forced banks to lend money to poor people.
Wallison misses the fact that poor people did not buy credit default swaps or McMansions. People with high incomes – by definition “not poor” buy McMansions in the suburbs, and bankers at institutions like AIG, Bear Stearns, Citi, Goldman Sachs, Lehman Brothers, etc, traded credit default swaps. And these bankers are not poor. By blaming the crisis on regulation Wallison is actually enabling criminals like Madoff.