Economic Outlook: Lemmings or felons

The Dow Jones industrial average reached a high for the year, but settled for a marginal gain as the surge deflated on Wall Street Monday.

The DJIA closed up 20.86 points to 9,885.80, a chip shot away from 10,000 points, where the index of blue-chip companies has not been since Oct. 6, 2008.

While U.S. markets move to levels unseen since the financial crisis hit, the legal system is catching up with some of the headline incidents of the Great Recession, including the collapse of Bear Stearns and Bank of America's acquisition of Merrill Lynch, which closed in January.

In Brooklyn, N.Y., jury selection is set to begin Tuesday for the case against Bear Stearns hedge fund managers Ralph Cioffi and Mathew Tannin. The two have pleaded not guilty to keeping secrets from investors -- the key secrets being any knowledge that their funds were in trouble.

Hedge fund managers, generally, do not scream "the sky is falling" very often, for the simple reason they are loath to have investors pull money out of system. On the other hand, jurors will have to decide if evidence, like an e-mail reading "we could blow up" constitutes a breach of fiduciary trust. It is one thing to vent in an e-mail. It is another to hide a professional assessment from clients.

Caught in several regulatory spotlights, Bank of America's board of directors voted Monday to disclose advice executives received from attorneys before purchasing Merrill Lynch, The New York Times reported.

The case, again, is about secrets. Executives allegedly struck deals to pay Merrill Lynch employees billions of dollars in bonus pay and accept $20 billion in federal bailout funds before the purchase without telling shareholders, who later voted to approve the merger. In addition, escalating losses at Merrill Lynch were hidden from shareholders.

Bank of America Chief Executive Officer Kenneth Lewis resigned two weeks ago as Congress, the Securities and Exchange Commission, New York State Attorney General Andrew Cuomo investigate the transaction.

Federal Judge Jed Rakoff already set the tone by first rejecting a $33 million settlement between the bank and the SEC, pushing the SEC to name names rather than simply fine the bank, which the judge said meant punishing shareholders for decisions executives made in which the shareholders were already the victims.

For every crisis, a day in court. For a big crisis, several days, several courts.

"I think the jurors will know the difference between an isolated incident and a world financial collapse," former federal prosecutor Cynthia Monaco said.

It's a critical distinction. Regarding the start to the Great Recession, it's essentially the difference between viewing bankers as lemmings or felons.

In Asian markets Tuesday, the Nikkei 225 in Japan rose 0.6 percent. China's Shanghai composite rose 1.44 percent. The Sensex index in India rose 2.31 percent, while the Hang Seng index in Hong Kong rose 0.79 percent.

In midday trading in Europe, the FTSE 100 in Britain added 0.16 percent, while the DAX 30 in Germany gave up 0.11 percent. The CAC 40 in France dropped 0.11 percent, while the DJ Stoxx 50 added 0.02 percent.