Tuesday, September 21, 2010
13 Bankers: The Wall Street Takeover and the Next Financial Meltdown by Simon Johnson and James Kwak is an excellent book that I would recommend to anyone who wants to understand how we got to where we are. Simon Johnson is a former chief economist with the International Monetary Fund. In that role, he had the chance to observe third world oligarchies whose financial systems were looted by government insiders and their cronies. Before the IMF would assist such countries it demanded real reforms in their banking systems and it required that the costs of those reforms fall upon those who had caused the problems, or at least upon some of those who had caused the problems. In the United States, however, the mega-banks that caused the financial crisis have for the most part emerged bigger and more powerful than ever.
Unlike the third world countries where oligarchies control government policy through corruption, the mega-banks built their power in large part by selling the laissez-faire ideology that less regulation is always better and that any financial innovation that succeeds in the market is necessarily good for the economy. Of course the revolving door between Wall Street and the regulators combined with generous campaign contributions didn't hurt, but in large measure, Wall Street was allowed do run wild without government interference because the conventional wisdom on both sides of the aisle among Congressman, Senators, regulators, and Presidential administrations was that what was good for Wall Street was good for America.