President Obama has had plenty to say about the financial crisis, yet I think his most noteworthy comment to date came during his recent Tonight Show appearance. Jay Leno described the immense dollar amounts of executive bonuses, and said
"I know what would make me feel better -- shouldn't somebody go to jail?"
At this the audience clapped and cheered loudly. In turn the President indicated that he understands the sentiment, but gave this reply:
"Here's the dirty little secret -- most of the stuff that got us into trouble was perfectly legal."
Talk about a truth that nobody wants to hear. It came to mind as I read an opinion piece about AIG's bonuses from an analyst I usually respect, who thinks this scandal could lead to jail time for some major executive, which actually "may be a positive event for the market and the economy." The idea is that jailing the scapegoats in previous financial scandals (Michael Milken, Charles Keating, Ken Lay) effectively purged public anger and started the return to normal.
But with President Obama's comment in mind, I think you see the problem. Today's crisis has a long way to go and may yet uncover a major villain who broke enough laws to be the face of the subprime-bailout-bonus scandal. But so far no one's been fingered, and it ain't for lack of trying. An FBI official this week said the bureau has more than 2,500 open investigations into mortgage and corporate fraud, and expects to open many more.
Thus far I haven't heard about the indictment or arrest of any household names.
So: Without a scapegoat, the public's anger is likely to do no more than seethe, and erupt in ways that are unpredictable and inopportune. An unquenched thirst for revenge is dangerous indeed. If it continues for too long, government becomes the target of last resort. Politicians know this better than you may imagine. Lots of people noticed when a certain senator recently suggested that AIG executives consider killing themselves; almost no one pointed out that this same senator was Chairman of the Finance Committee for most of the early 2000s, and is now that committee's ranking member.
There's no doubt that the big picture is ugly; the trend could get uglier still. No individual investor need assume, however, that he or she is at the mercy of that trend. You can get yourself and your finances ahead of the news.
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