If Andrew Ross Sorkin is right, then the FDIC is doing exactly the kind of thing that we are chastising the banksters for – incurring massive contingent obligations without clear ability to repay them (if you don’t have legal authority you can’t legally spend the money).

If we did this with our checkbooks for a $100 check, we are clearly committing a crime, and we’d risk a jail term. We are all asking what it is when a bunch of corrupt MBAs do this at AIG FP for $1-2T in contingent obligations. What is it when a government agency does it for a similarly sized set of contingent obligations?

Let’s ask Congress, and let’s insist that they stop posturing and make a decision about whether they will or won’t solve the problem. The worst thing about this flouting of the law is it gives the political class air cover.

If we had to go through an actual, you know, legal process to ensure that saving the world was, well, legal, then we might actually have to put all the facts on the table, consider alternatives, and come up with a solution that our citizens have vetted and approved.

But that wouldn’t deliver a result within the cable news cycle, and that somehow wouldn’t make our leaders extraordinary heroes.

Oh, and it might prevent a multi-trillion dollar disaster that, well, legally, our citizens will have to pay taxes to make good. But to today’s journalists, that consideration, as welll as the law, are irrelevant.

When did that happen?

1. The bank regulators had the authority to examine any aspect of a bank¹s activities. They had the authority to figure out what was going on at the banks and to limit it. The regulators did nothing. So all the new regulations on paper will mean nothing if the regulators cannot or will not do their jobs.

2. Consolidating regulators or setting up an international cooperative coalition will not likely achieve the desired goals. Sending a regulator who makes $50,000 dollars a year to examine the activities of sophisticated financial traders who make millions of dollars a year is not a fair battle. And if you have ever worked in a government agency, as I did for over 4 years, you will be intimately familiar with the viciousness of the turf battles among the senior officials. There is a lot of deadwood at the top of the agencies and it needs to be cleaned out. A Herculean task if there ever was one.