Hedge fund managers were before congress justifying their pay packages and arguing against regulation while pointing the finger of blame at the ratings companies for the crisis; aka scam aka; market failure. So which is it? Everyone agrees that crisis surely fits the bill, but the characterization of the crisis as originating in a scam or a market failure of epic proportions is being ruled out of court.
Here is the dilemma: characterize the crisis as a scam and then people will have to go to jail. The problem is that if this be a scam it involves almost every single major player in the financial and political establishment in the US not to mention the UK. In short, call it scam and a huge swath of the US ruling class would be on the hook.
However, if the crisis is characterized as a massive market failure (and massive is no mere hyperbole, perhaps understatement) then 30 years of patient theoretical innovation in the dismal science not to mention the ideological underwriting service it played to the institutional restructuring of the past thirty years will have to be re-thought.
This is very much where we are today. Everyone from the EU to GWB Jr., has been doing neoliberal damage control. The problem is that it is being done with public money and the refusal to either indict the ideology or the players threatens to stoke the flames of a populist back-lash. Serious folks know that, much like the Chernobyl explosion, the present crisis is very much an event that is still happening and almost no one knows what the half-life of the toxic particles are, or indeed their long term effects.
Bush almost sounds quaint when he says that the “state is not a cure all.”
Someone should tell that to the financial sector having now been possibly the largest welfare recipient in human history.