Today's Least Surprising Headline

JUSTICE DEPARTMENT WON'T PROSECUTE GOLDMAN SACHS

Or, one gang of Ivy League grads won't go to war with their classmates/squash partners/cousins/inlaws.

When the financial world fell apart, threatening a worldwide depression, the Obama administration decided to rebuild Wall Street from the inside. To restore confidence, they decided to prop up the remaining big banks and trading houses and let them earn their way out of the hole they had dug themselves into. I don't think anyone in Washington really liked this, but the alternatives were scary. Tea Partiers wanted to let the banks fail, but the economic minders in both the Bush and Obama administrations thought that would mean global ruin. Leftists wanted to seize the banks, but that would have cost the government hundreds of billions; and once we owned the banks, what would we have done with them?

So we went into bed with the big Wall Street firms, guaranteed their paper, and told them to get on with saving the economy. Which they have not really done, preferring to shore up their own balance sheets, but at least they have performed their essential functions. One of the problems with the strategy we have pursued is that we pretty much surrendered the chance to prosecute anyone in the banks we propped up for the massive frauds they carried out in 2004-2007. At first we were desperate to maintain confidence, and now we need the banks to keep the economic recovery (such as it is) stumbling along. To prosecute all the people who profited from mortgage fraud and mortgage bond fraud would mean a clean sweep of Wall Street executives, which would lead to financial turmoil.

By working with the banks to fix the crisis, we became the bankers' hostages. I don't like this, but I don't see that there is much we can do about it now.