Will Wall Street Go Free?

By WILLIAM D. COHAN
NYT

Let me try to get this straight. The Justice Department announced last weekend that it has dropped its criminal investigation into wrongdoing by the former executives of American International Group Financial Products, or A.I.G.-F.P. — the group inside A.I.G. that foolishly decided to insure billions of dollars of risk in the mortgage market, and got paid millions of dollars for doing so. So the Obama administration, which has repeatedly pilloried banking executives in an effort to build support for its financial reform package, has in one step reduced exponentially the chances of actually holding people on Wall Street accountable for the financial crisis, which was an utterly preventable self-inflicted wound. This is simply incomprehensible.

Especially since the facts with which to hold people accountable are so compelling. Forthwith, then, a financial crisis reminder primer:

During the spring of 2007, two hedge funds run by Bear Stearns started to lose value after 40 consecutive months of positive returns. By June 2007, the funds’ nervous investors and short-term lenders started heading to the exits. To appease the short-term lenders, whose loans were secured by the squirrelly mortgage-related securities in the fund, Bear Stearns itself offered to take many of them out at 100 cents on the dollar, effectively becoming the sole short-term lender to the hedge funds. Bear Stearns offered the hedge-funds’ investors much less.

(More here.)