The escalating crackdown on Wall Street hedge funds and expert networks hit a fever pitch on Thursday as four suspects were arrested, and an additional four individuals pleaded guilty to insider trading charges.
"I don't think it suggests at all that Wall Street is corrupt and I don't think that's what investors will think as evidenced by the reaction of the market," Steve Rattner, a former counselor to the Treasury who led the administration's auto industry restructuring, told CNBC's "The Strategy Session" on Thursday.
"99.9 percent of the people who work on Wall Street are honest. Everyone knows there are always a few bad apples and having this process of cleaning them out is fundamentally healthy," Rattner said.
"These prosecutions will clarify what is appropriate and what is not appropriate. People will certainly back up in terms of their behavior because it's clear that they're going to be held to a very high standard, which they should be," said Rattner, who co-founded the private equity firm Quadrangle Group.
Rattner was sued last month by New York Governor-elect Andrew Cuomo, currently state attorney general, over allegations he paid kickbacks to win investments from the state's public pension fund.
The suits seeks $26 million from Rattner and a lifetime ban from practicing in New York's securities industry.
"I don't believe I broke New York law. I am going to essential fight and win and show people he [AG Cuomo] was off-base, Rattner said.
"I was willing to settle on reasonable terms. But that I was not going to be bullied or pushed into something that was unreasonable," he said.
In a separate but related action, the Securities and Exchange Commission said Rattner has agreed to pay $6.2 million to settle civil charges related to the case and consented to a bar from investment advisory or broker-dealer services for at least two years.
Aside from his legal challenges, Rattner commented about President Obama's tax package, calling the new bill "one the worst pieces of legislation passed for a long time."
"We are just kicking the can down the road. We are adding a trillion dollars of debt that we can't afford to repay. We're prepetulating a tax system that everyone knows doesn't work, we're putting it in a 2012 election cycle where everybody knows nothing constructive is going to happen," he said.
"Basically the message is that nothing good is going to happen in terms of taxes or our deficit until 2013, and that's a long time away," Rattner concluded.
The former Auto Czar said GM's decision last month to go public was based on striking a balance between the automaker and the government.
"They went public at a reasonable time," Rattner said.
"Chris Ladell, who is the CFO, comes out of Microsoft," he said, adding, "This is a cyclical business and Chris is completely right to run this as an unleveraged company to the maximum amount possible."
Watch CNBC's "The Strategy Session" weekdays at Noon ET.