[Pissed off naive lefties: future WN?]

Pinstripes always prosper

Diane Francis, Financial Post
Published: Thursday, March 27, 2008

The Dalai Lama's immense soft power is hobbling the second-largest economy in the world, while Oprah's soft power catapulted Barack Obama toward the White House. It seems as though everything is different and yet some things never change.

JPMorgan Chase was nudged by Washington into bailing out Wall Street's most reckless investment bank, Bear Stearns, in order to save the whole street. JPMorgan's namesake, John Pierpont Morgan, did exactly the same thing and bailed out America's financial system during the panic of 1907.

Similarly, the Federal Reserve leaned on the Bank of America to bail out reckless mortgage lender Countrywide Financial.

Both bailouts were in concert with dramatic interest-rate cuts by the Fed plus mass infusions of capital from other government agencies.

Was it a near-miss? Or step one in an eventual depression worldwide?

Hopefully not, but only if unbridled, laissez-faire financial sectors are reined in. Lest we forget, the Invisible Hand veers violently between fear and greed, collapse and bubble. So the takeover of laxly regulated Bear Stearns and Countrywide by regulated banks signals a new level of governance, one approaching the Canadian version, where banks are bridled better and they, in turn, own all the investment banks.

Even then, the Canadian constraints, while better, are far from perfect. A good start would be that those current players in banks and pension plans who got caught up in some of this mess should all be fired.

Unfortunately, pinstripes always prosper, and the U.S. taxpayers who are paying sums the size of national economies to Band-Aid this nightmare won't be repaid the obscene salaries, bonuses, stock options and fees that were pocketed by the robber barons.

Not only should the big shots lose their jobs for gambling and looting, but the cops should be called in to probe how so many could turn sows' ears into silk purses on debt markets. In summary, these are the issues: - Banks were allowed to play craps with other people's chips and make huge leveraged bets around the world without being forced to put aside enough capital in case they were stupid. - Intermediaries represented junk bonds as AAA and "papered" this label by hiring, co-opting or defrauding rating agencies. - They exported their garbage to greedy clients around the world who were unaware that practices were out of control.

Meanwhile, back in Canada and America's other debt-dumping grounds, there seems to be little in the way of litigation against these Wall Street rogues or, in addition, against the Canadian banking/investor/pension plan big shots who wagered Canadian savings in these crapshoots.

Seems to me that in a globalized system, one helpful reform would be to bar Canadian financial institutions from playing poker with people who have different rules. Or setting aside extra capital in case they are stupid.

So why haven't heads rolled at Canada's major chartered banks and investment houses, or at the Caisse de depot et placements du Quebec, which lost more than any other entity, or $12-billion out of its total of $260-billion?

dfrancis@nationalpost.com

--- - Diane Francis blogs at financialpost.com/dianefrancis

http://www.financialpost.com/Story.html?id=402216