NEW YORK (Reuters) - A failure to prosecute the "villains" responsible for the financial crisis that brought the United States to its knees will leave the country without the moral compass needed to avert future crises, a Wall Street luminary said.
Pioneer hedge fund manager Michael Steinhardt is angry that the bailout of America is eroding the nation's capitalist ethos while those whose deeds crippled the U.S. economy suffer scant opprobrium, their names still untarnished.
"Something really went wrong here. We're about to enter a period where our budget deficit will dwarf anything we've seen before," Steinhardt told the Reuters Investment Outlook Summit in New York.
"What we really needed a long time ago was a recognition that there were villains apace. The evils of the financial system should have been recognized long before this," said Steinhardt, who no longer manages billions of dollars but whose counsel is sought on Wall Street and among select politicians.
While scornful of the financial executives who should have known better, he also belittled Washington for its lack of leadership and for not spelling out what the future beholds.
The current and former Federal Reserve chairmen have proved ill-prepared for the job, said Steinhardt, a former chairman of the Democratic Leadership Council, where he helped promote the career of Bill Clinton before he became president.
Of former Fed Chairman Alan Greenspan, often criticized for keeping interest rates so low that they sparked the housing bubble, Steinhardt said he may have been stupid for a long time, "but he wasn't pernicious."
Current Fed chief Ben Bernanke is little better.
"When you see what Bernanke said five, four months ago, it's laughable," he said. "So Bernanke is not a villain but was he prepared for what has happened here? Not in the slightest."
Steinhardt, however, said Americans themselves must share the blame for running away from the debacle and for not questioning the enormous public debt the U.S. government is about to assume.
"If you cannot accept short-term pain, then you do all sorts of things to coat reality, to pretend, to fabricate, to lie. That is what has happened in American business in the last 10 years," he said.
Steinhardt, who now dedicates his time to philanthropy, still hues to the almost impossible standards that made him a legend. His Steinhardt Partners hedge fund returned an annual 24.5 percent after fees over 28 years before he shut the fund in 1995.
Steinhardt is aware of scandal and reputation. His firm was stung by a federal investigation into allegations he and others, including Salomon Brothers, tried to corner the two-year U.S. Treasury market in the early 1990s.
Steinhardt denied any wrongdoing, and paid a fine and fees of more than $70 million to settle the case.
Steinhardt asked that if the government and Americans are unwilling to prosecute by law, what are the consequences of not being responsible and holding the culprits up for contempt?
"The question is, What's going to come of this, if there are going to be no villains?" he said.
"Is Hank Greenberg a villain?" Steinhardt said, referring to the former chief executive of insurer American International Group (AIG.N: Quote, Profile, Research, Stock Buzz), recipient of a $152 billion federal bailout after it suffered massive losses mainly on complex securities tied to mortgages that had declined in value.
He rattled off other names: James "Jimmy" Cayne, former CEO and chairman of defunct investment bank Bear Stearns Cos, whose unsustainable leverage in two failed hedge funds sparked the crisis in summer 2007.
And Richard Fuld, ex CEO of failed investment bank Lehman Brothers Holdings Inc. (LEHMQ.PK: Quote, Profile, Research, Stock Buzz), whom Steinhardt said he saw last week in a restaurant "happy as a hero, blowing kisses."
Finally, he asked, referring to the senior counselor of Citigroup (C.N: Quote, Profile, Research, Stock Buzz) and a former Treasury secretary under Clinton. "Is Bob Rubin a villain? Still at Citibank? Is he a villain? You can't name a villain? Is this a villain-less debacle?"
Although a friend of Clinton, Steinhardt knocked Barack Obama's pick of ex-Clinton officials for key positions in his administration. The choices reveal a deep lack of substance on the president-elect's part, he said.
"We have a new president who I find to be an absolute tabula rasa in terms of his knowledge of anything," he said, referring to Obama as a blank slate.
"Pay attention to what Obama says and you will find he hardly ever says anything of consequence."
Steinhardt also railed against Congress, where the quality of intellect "is not exactly awing."
"It seems to me that the intellectual level that we are surrounded with both in government and in the industry is exceptionally low at the moment, it makes me angry."
Steinhardt's trading was the stuff of legend, but politics were abysmal. Bill Clinton? C'mon, could you find a better example of a sociopathic degenerate? No one will be held accountable except for Uncle bucky. He's not going to prison. He's going into the ovens...
The problem with the Illuminati is that they're all such charming, gnomish people. David Rockerfeller for instance, really sweet little guy. It's hard to see them as evil megalomaniacs bent on world domination, and perhaps they aren't.
The Underground History of American Education is a great book, you should Google it. There's a discussion at some point about institutional evil, where John D. Rockerfeller is standing trial regarding a massacre perpetuated by men in his employ (something about workers). The dilemma is, the man is either ignorant of the evil in his organization or he's indifferent to it, and the author's point is, it's both. The human mind doesn't have the cognitive capacity to be concerned about 151 people, much less 151 million - that's why economic models have been coldly sociopathic, abstracting people to constrained agencies rather than breathing, dreaming minds. It's an ideology born of the convenience of cognitive capacity limitation. A conspiracy of stupidity in the strong sense (the book goes on to detail how the school systems are designed to stupify people, which is why when I claimed we're in for massive inflation at a conference and someone else informed me many Ph.Ds said we're in for delfation, I said "That pretty much tells you on the nose that we're in for inflation").
I also think this is just another consolidation move that was engineered to happen by Basel II. But again, that's institutional stupidity/evil, the kind of machination only possible by collective "intelligence" entities such as a global banking consortium. Controlled chaos and plausible deniability wrapped up like pigs in a blanket.
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