Endemic Legalized Corruption

I saw the headline in the Financial Times : “Paulson reaps £270m ’shorting’ RBS.” It took a moment to register that it was John Paulson, the hedge fund manager. That I thought it could easily be Hank Paulson says something about the sorry state of affairs we’re in.

I mean, it was Hank’s old firm that was advising some of its clients to short the very bonds it was selling to other clients. So why wouldn’t I think it was Hank in this era of endemic legalized corruption?

Why wouldn’t I think it was Hank when I read the news this morning that Citi used some of its TARP money to buy a $50 million corporate jet ? Or when I read Eric Fry’s deconstruction of Merrill’s decision to pay out $4 billion of TARP money as bonuses? Or when I deduced last week that some of that TARP money has been effectively recycled as contributions to the new president’s inaugural committee?

And then there’s the matter of Hank’s successor. Mr. Geithner. On further reflection, I think I was off-base two weeks ago when I said his back taxes paled in comparison to his hands-on role alongside Paulson in every disastrous decision of 2008. For one thing, his Turbo Tax excuse appears bogus. For another thing, he got away with paying only the back taxes plus interest. No penalties. Just try the same thing yourself and see if you get the same results.

A clever reporter brought up this issue yesterday to the new president’s press secretary Robert Gibbs, contrasting Geithner’s situation with that of the actor Wesley Snipes. Gibbs was caught at least as flat-footed as his immediate predecessor Dana “Don’t know much about history” Perino often was, but eventually stammered out this reply:

“The president also believes that he has a unique experience, unique intelligence, and a unique background to tackle the economic crises that we face right now as a country and throughout the world,” Gibbs continued. “That he will be a tremendous leader to our economic team and somebody that I think Americans will value having on their side as we try to turn this economy around and get people working again.”

Just like Hank Paulson, I’m sure. Endemic legalized corruption. At least Geithner has a less-common name and I’m less likely to be tripped up reading my morning headlines.

Update: I see Merrill’s John Thain might have to face the music for those $4 billion in bonuses. But the self-styled crusader pursuing the case has his own housing and credit bubble issues. Consider it a falling-out among thieves.

The Daily Reckoning