As I infer in my Openmarket post referred to below, we on the anti-bailout, anti-GSE wing cannot be criticized for suggesting that Wall Street should be free from blame on the financial crisis. I particularly recommend Jagdish Baghwati’s recent FT article about how Wall Street turned “creative destruction” on its head to come up with “destructive creation.” And why did this come about? Prof. Baghwati is quite clear:
The failure to think about the downside results from what I call the “Wall Street-Treasury Complex”. Robert Rubin went from Goldman Sachs to the Treasury and back to Citigroup. Hank Paulson went from Goldman Sachs to the Treasury and will doubtless return also to Wall Street. This network shares the optimistic scenarios that Wall Street spins. Mr Rubin was in charge of the Treasury during the Asian financial crisis, whereas Mr Paulson was among the five major investment banking chief executives who persuaded the Securities and Exchange Commission not to extend prudential reserve requirements to their companies.
The revolving door has to stop. Some genuine creative destruction on Wall Street would help a great deal in that.