Larry Ribstein ponders the government’s failure to prosecute some big businessman as the ultimate scapegoat of this financial crisis, in the way that it prosecuted Michael Milken and Jeff Skilling. His conclusion: “Maybe it’s become just too obvious that we created the financial crisis.

As even Oliver Stone showed in his movie, we borrowed all that money and thought the housing boom would never end.  We saw the risks in the disclosure documents but ignored them, or refused even to look.  We heard the doomsayers and preferred to ignore them.  We elected the politicians who subsidized the housing bubble, and decided which firms should live and which should die. Maybe we have seen the face of the financial crisis.  In the mirror.”

I’m afraid that Ribstein is far too optimistic—particularly that last part about realizing the politicians we elected played a major role in creating the financial crisis. Politicians may be voted out this November for failing to end the recession and the collapse of housing prices. But I have yet to hear mobs of voters bewailing the cheap mortgages that they initially received or the money that the government spent on their Medicare during the last several decades. 

Rather, I fear that the absence of big-name victims suggests politicians have learned the lesson of Eliot Spitzer, who was often criticized by the far Left for jailing some little fish but letting CEOs get off with a fine. What Spitzer knew, and what D.C. politicians seem now to have grasped, is that one can wield far more power over business by not putting big businessman in prison. Yes, you must jail a few small fry, just to show you are serious. But when it comes to the executives who have real power, the best treatment is to let the anti-capitalist media destroy their public reputations, then threaten them with prison—then accept a large fine, on the condition that they publicly agree their industry needs government supervision and regulation. Rare is the man who will reject that bargain.

As usual, Ayn Rand said it best in Atlas Shrugged, when she put these words into the mouth of a bureaucrat: “There’s no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What’s there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted—and you create a nation of lawbreakders—and then you cash in on guilt”


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