If I were a fly on the wall at Preet Bharara household's Thanksgiving dinner, I can imagine what I'd have seen amid the turkey, cranberry sauce and fixings. I can see it now: The U.S. attorney for the southern district of New York, having taken absolutely no steps against any of the major players in the greatest financial crisis since the Great Depression, giving thanks -- for insider trading.I know, I probably should be joining in the media frenzy over the Great Upcoming Hedge Fund Insider Trading Scandal of 2010-2011. But something about the whole thing bugs me. For one thing, it is the subject of more intensive leaking since the South Fork Dam started pouring its contents over Johnstown in 1889. Secondly, and most importantly, it has a veritable stench of being the prosecutorial equivalent of a consolation prize. Sort of the public being given a lovely parting gift, when what people really want is the grand prize: punishment for the perpetrators of the financial crisis that has wreaked havoc with the economy and is pushing thousands of people out of their homes. Let's take a look at Preet Bharara's track record on the actions of the big banks that have surfaced so far in actions by other branches of the federal government. The Goldman Sachs ( GS) scheme to allow the Paulson hedge fund to manufacture a synthetic CDO -- nothing. The Lehman Brothers asset-shifting scheme -- nothing. As I've pointed out many times before, most recently in this space last month, the major perpetrators of the financial crisis are enjoying monumental success, just as if there never had been a financial crisis or TARP program in the first place. There was talk a few weeks ago of massive consequences from the foreclosure mess, and I guess that's always possible, but the Bharara track record is not assuring in that regard. So, instead, we have the massive Upcoming Insider Trading Scandal, which so far has been mainly played out in the media. I don't have any objection to media orchestration, per se, but this particular chorus line seems straight out of Busby Berkeley.
Last week, a little birdie leaked to the media that SAC Capital Advisors, an immense hedge fund controlled by Stephen A. Cohen, was being subpoenaed in what the Wall Street Journal described as a "vast insider trading probe." In addition to Cohen, who has never won any popularity contests, the feds are supposedly probing that giant and fabulously unpopular Goldman Sachs. They are said to be examining whether Goldman bankers leaked information about deals in a way "that benefited certain investors." Also supposedly receiving subpoenas are the Janus ( JNS) mutual fund group and Wellington Management, both of which are staid and ordinarily uncontroversial money management companies. Then, just before Thanksgiving, arrests! A research-firm executive was busted, charged with helping hedge funds obtain nonpublic information about companies. I see that Bharara is working his Rudy Giuliani Manipulate the Media Playbook, replete with white-collar defendants paraded before the cameras like mobsters. All this has a Claude Rains-ish element of "rounding up the usual suspects." Now, I'm not saying that these usual suspects shouldn't be rounded up. I'm against insider trading. Insider trading is a crime, and should be punished. These usual suspects, if convicted, should be punished severely. There they are, selling visas on the streets of Casablanca. I'm glad that Capt. Renault is cleaning up the Casbah, but shouldn't he be hunting for Victor Laszlo? Peter King framed the issue well in the Huffington Post the other day: "it is hard to see how a nation still furious about the financial crisis and its aftermath will (or should) take consolation from cases such as these." In the context of the demolition of the economy, he says, insider trading "reeks of the small time." He's right. But it sure looks big, doesn't it? And that's what counts. A kind of zenith of unintentional irony in the media frenzy came last week when Harvey Pitt, who served a mercifully brief term as SEC chairman under George W. Bush, emerged as a principal media cheerleader of the Upcoming Insider Trading Scandal. "Basically this is fairly simple," said Pitt, now a "consultant," in one TV appearance. "You're not supposed to cheat by having information that the rest of the marketplace doesn't have . . . this is just an indication that the insider trading scandals of the 1980s and 1990s have been forgotten. And a lot of people need reminding about what the rules of the game actually are." I'll agree that a lot has been forgotten -- such as the fact that Harvey Pitt was frog-marched out of the SEC after a disastrous term in office. And that he was one of the primary architects of the deregulation mania that fueled the financial crisis.
So what actually are those rules of the game? Well, one of them was enunciated by Bob Dylan and quoted by Peter King in the HuffPo: "Steal a little and they throw you in jail, steal a lot and they make you king." Another, crystallized by the spectacle of a morally outraged Harvey Pitt, is that hypocrisy works -- because memories are short.