The Most Important Story You Won't See on TV

Yesterday, Judge Jed Rakoff, pictured, rejected the proposed settlement of $33 million by the Bank of America with the SEC over allegations that Bank of America had lied to shareholders regarding bonuses for Merrill Lynch managers. BofA acquired Merrill Lynch last January, just after over $3 billion in bonuses were paid to Merrill management. The SEC alleges that BofA's proxy letter to shareholders was materially misleading.

Judge Rakoff states:

"Oscar Wilde once famously said that a cynicis someone 'who knows the price of everything and the value of nothing.' The proposed Consent Judgment in this case suggests a rather cynical relationship between the parties... And all this is done at the expense, not only of the shareholders, but also of the truth."

The reason this is so important is that it affirms the rule of law and accountability in our financial markets. I don't know if the BofA executives committed a crime or not; but look at the perverse incentives in the system. For a mere $33 million, not even your own dough, but that of your shareholders, you, the CEO of BofA get to waive prosecution, WITHOUT ADMITTING PERSONAL GUILT. Considering that your own future bonus might be at stake, better to get this thing over, if you're the CEO. On the SEC side, you've got plenty of egg on your face already, from Bernie Madoff, to a number of bonus related issues. The fine allows the SEC to maintain that they are on the job.

But it is all crap. The SEC says that the execs relied on the lawyers for advice, so we didn't prosecute. OK, so why not prosecute the lawyers? WHO IS ACCOUNTABLE? There is also a back story that no one wants exposed here. The chairman of the Fed, Ben Bernanke, has claimed that neither he nor then Treasury Secretary Paulson pressured Bank of America to buy Merrill Lynch. I think he's lying. I want to see a trial. I want to see the truth come out.

Transparency and the rule of law are necessary for capitalism to work. Much of last year's melt down can be traced to a lack of both. I find myself applauding Judge Rakoff, along with Dennis Kucinich of all people. However, I suspect Kucinich is just upset over the bonuses, my interest is in the rule of law. We'll see if the SEC has the guts to prosecute. There case might be weak. If it is, that will tell us something too.

Why is this the most important story not on TV? It's neither glamorous nor gruesome, but goes to the heart of what makes capitalism work. Our future economic growth depends as much on ethical behavior as it does on defeating big government spending.