Thursday, August 16, 2012
If I may draw an off-the-wall comparison, I think there are two organizations that are rarely thought of together but bear some similarities. Both are autonomous, secretive, and their actions and decisions are scrutinized by a captive group of smaller institutions.
They are the Federal Reserve and the NCAA. Somehow in my mind, I made a connection between the PSU penalties and the bailouts of companies like Goldman Sachs. In both cases, the Authority acted of its own volition, with differing degrees of legitimacy, but in a way that had critics warning of setting a precedent. Without getting into the relative wisdom of either decision (I'm much more sympathetic to the punishment Penn State to be sure), both decisions left it open to discussion: is this how the Authority will respond in the future?
Which lead me to another comparison: Lehman Brothers and UNC. Now there are some reasons within the logic of the bailouts themselves that Lehman (or their creditors) were not worthy of rescue. I also have to imagine that the Fed really does acknowledge, however inadequately, the notion of moral hazard. But maybe it's just that when you have indiscriminate power, acting with unpredictability _enhances_ the sway you have. In either case, when many people were saying, "You just have to bailout Lehman, after all, you bailed out AIG and Goldman," it was precisely for that reason the Fed _couldn't_.
So now wihtin the same calendar year, just like 2008, the Authority is witholding action while people are screaming, "You took out Penn State, what about UNC!?" Perhaps they're making the same pointed show of their sovereign discretion. Either way, the member institutions are drowing in the same sea of unpredictability.