Over the past 30 years Wall Street captured the thinking of official Washington, persuading policymakers on both sides of the aisle not to regulate (derivatives), to deregulate (Gramm-Leach-Bliley), to not enforce existing safety and soundness regulations (VaR), and to stand idly by while millions of consumers were misled into life-ruining financial decisions (Alan Greenspan).
This was pervasive cultural capture or, to be blunter, mind control. But when the crisis broke it was not enough. Having powerful people generally on your side is not what you need when all hell breaks loose in financial markets. Official decisions will be made fast, under great pressure, and by a small group of people standing up in the Oval Office.
If you run a big troubled bank, you need a man on the inside--someone who will take your calls late at night and rely on you for on the ground knowledge. Preferably, this person should have little first-hand experience of the markets (it was hard to deceive JP Morgan and Benjamin Strong when they were deciding whom to save in 1907) and only a limited range of other contacts who could dispute your account of what is really needed.
Robert Morgenthau, the sage district attorney of New York County since 1975 who at age 90 is leaving office this winter, knows a good deal about banks. After all, he was the one who in the early nineties prosecuted the B.C.C.I. scandal, a model of the international misuse of banks.
In a sense, he grew up with banks, his father having been secretary of the treasury under Franklin Roosevelt and his immigrant ancestors having been among the aristocracy of German Jewish bankers in 19th century New York.
Earlier on Tuesday, he gave a speech in Washington that addressed some of the great lacunae in the whole international sanctions regime against Iran. Now, I myself don't think for a moment that even "effective" sanctions would persuade the Tehran regime of Dr. Ahmadinejad and the ayatollahs to relent on their rush to nuclear weapons. But, as everyone who knows anything about this matter knows, the United Nations has legislated a highly porous structure through which both money and materiel pass easily.
He has met with every significant figure in the Iraqi government and even with members of anti-occupation militias. He has quietly reached out to representatives from both Syria and Iran. He has begun discussions with Jordan, Turkey, and Saudi Arabia to lay the groundwork for internationalizing the Iraq crisis. According to The New York Times, he meets regularly with President Bush. It's widely expected that, after the election, he will offer the definitive blueprint for how to move forward on Iraq. Dick Cheney? Donald Rumsfeld? Stephen Hadley?
