The Quiet Coup

The Quiet Coup - Simon Johnson - The Atlantic
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ECONOMY MAY 2009
The Quiet Coup

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our governmenta state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMFs staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, were running out of time.
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ONE THING YOU learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your clients come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. Youre never at the top of anyones dance card. The reason, of course, is that the IMF specializes in telling its clients what they dont want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over
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that time, from every vantage point, I saw firsthand the steady flow of officials from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere trudging to the fund when circumstances were dire and all else had failed. Every crisis is different, of course. Ukraine faced hyperinflation in 1994; Russia desperately needed help when its short-term-debt rollover scheme exploded in the summer of 1998; the Indonesian rupiah plunged in 1997, nearly leveling the corporate economy; that same year, South Koreas 30-year economic miracle ground to a halt when foreign banks suddenly refused to extend new credit. But I must tell you, to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excessexports must be increased, and imports cutand the goal is to do this without the most horrible of recessions. Naturally, the funds economists spend time figuring out the policiesbudget, money supply, and the likethat make sense in this context. Yet the economic solution is seldom very hard to work out. No, the real concern of the funds senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis. Typically, these countries are in a desperate economic situation for one simple reasonthe powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knitand, most of the time, genteeloligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckoncorrectly, in most casesthat their political connections will allow them to push onto the government any substantial problems that arise. In Russia, for instance, the private sector is now in serious trouble because, over the past five years or so, it borrowed at least $490 billion from global banks and investors on the assumption that the countrys energy sector could support a permanent increase in consumption throughout the economy. As Russias oligarchs spent this capital, acquiring other companies and embarking on ambitious investment plans that generated jobs, their importance to the political elite increased. Growing political support meant better access to lucrative contracts, tax breaks, and subsidies. And foreign investors could not have been more pleased; all other things being equal, they prefer to lend money to people who have the implicit backing of their national governments, even if that backing gives off the faint whiff of corruption. But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.
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The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterdays public-private partnerships are relabeled crony capitalism. With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreigncurrency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national championsnow hemorrhaging cashand usually restructure a banking system thats gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs. Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, orheres a classic Kremlin bailout techniquethe assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emergingmarket governments look first to ordinary working folkat least until the riots grow too large. Eventually, as the oligarchs in Putins Russia now realize, some within the elite have to lose out before recovery can begin. Its a game of musical chairs: there just arent enough currency reserves to take care of everyone, and the government cannot afford to take over private-sector debt completely. So the IMF staff looks into the eyes of the minister of finance and decides whether the government is serious yet. The fund will give even a country like Russia a loan eventually, but first it wants to make sure Prime Minister Putin is ready, willing, and able to be tough on some of his friends. If he is not ready to throw former pals to the wolves, the fund can wait. And when he is ready, the fund is happy to make helpful suggestionsparticularly with regard to wresting control of the banking system from the hands of the most incompetent and avaricious entrepreneurs. Of course, Putins ex-friends will fight back. Theyll mobilize allies, work the system, and put pressure on other parts of the government to get additional subsidies. In extreme cases, theyll even try subversionincluding calling up their contacts in the American foreign-policy establishment, as the Ukrainians did with some success in the late 1990s. Many IMF programs go off track (a euphemism) precisely because the government cant stay tough on erstwhile cronies, and the consequences are massive inflation or other disasters. A program goes back on track once the government prevails or powerful oligarchs sort out among themselves who will governand thus win or loseunder the IMF-supported plan. The real fight in Thailand and Indonesia in 1997 was about which powerful families would lose their banks. In Thailand, it was handled relatively smoothly. In Indonesia, it led to the fall of President Suharto and economic chaos. From long years of experience, the IMF staff knows its program will succeed stabilizing the economy and enabling growthonly if at least some of the
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powerful oligarchs who did so much to create the underlying problems take a hit. This is the problem of all emerging markets. Becoming a Banana Republic In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldnt be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldnt roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people. But theres a deeper and more disturbing similarity: elite business interests financiers, in the case of the U.S.played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them. Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even betterin a buck stops somewhere else sort of wayon the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for safety and soundness were fast asleep at the wheel. But these various policieslightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownershiphad something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sectors profitssuch as Brooksley Borns now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998were ignored or swept aside. The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industrys ascent. Paul Volckers monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together,
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these developments vastly increased the profit opportunities in financial services. Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.
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The great wealth that the financial sector created and concentrated gave bankers enormous political weighta weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent. The Wall StreetWashington Corridor Of course, the U.S. is unique. And just as we have the worlds most advanced economy, military, and technology, we also have its most advanced oligarchy. In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, oldfashioned corruptionenvelopes stuffed with $100 billsis probably a sideshow today, Jack Abramoff notwithstanding. Instead, the American financial industry gained political power by amassing a kind of cultural capitala belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The bankingand-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to Americas position in the world. One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroups executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulsons predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a
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consultant to Pimco, perhaps the biggest player in international bond markets. These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumniincluding Jon Corzine, now the governor of New Jersey, along with Rubin and Paulsonnot only placed people with Wall Streets worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service. Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008attended by top policy makers from a handful of rich countriesat which the chair casually proclaimed, to the rooms general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker. A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspans pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: The management of market risk and credit risk has become increasingly sophisticated. Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks. Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didnt. AIGs Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as picking up nickels in front of a steamroller, this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIGs sophisticated risk modeling had said were virtually impossible. Wall Streets seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.
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As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. Works like Barbarians at the Gate, Wall Street, and Bonfire of the Vanitiesall intended as cautionary talesserved only to increase Wall Streets mystique. Michael Lewis noted in Portfolio last year that when he wrote Liars Poker, an insiders account of the financial industry, in 1989, he had hoped the book might provoke outrage at Wall Streets hubris and excess. Instead, he found himself knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. Theyd read my book as a how-to manual. Even Wall Streets criminals, like Michael Milken and Ivan Boesky, became larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the countryand that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress. From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing: insistence on free movement of capital across borders; the repeal of Depression-era regulations separating commercial and investment banking; a congressional ban on the regulation of credit-default swaps; major increases in the amount of leverage allowed to investment banks; a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement; an international agreement to allow banks to measure their own riskiness; and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation. The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights. Americas Oligarchs and the Financial Crisis The oligarchy and the government policies that aided it did not alone cause the financial crisis that exploded last year. Many other factors contributed, including excessive borrowing by households and lax lending standards out on the fringes of the financial world. But major commercial and investment banksand the hedge funds that ran alongside themwere the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an everincreasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew. Because everyone was getting richer, and the health of the national economy
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depended so heavily on growth in real estate and finance, no one in Washington had any incentive to question what was going on. Instead, Fed Chairman Greenspan and President Bush insisted metronomically that the economy was fundamentally sound and that the tremendous growth in complex securities and credit-default swaps was evidence of a healthy economy where risk was distributed safely. In the summer of 2007, signs of strain started appearing. The boom had produced so much debt that even a small economic stumble could cause major problems, and rising delinquencies in subprime mortgages proved the stumbling block. Ever since, the financial sector and the federal government have been behaving exactly the way one would expect them to, in light of past emergingmarket crises. By now, the princes of the financial world have of course been stripped naked as leaders and strategistsat least in the eyes of most Americans. But as the months have rolled by, financial elites have continued to assume that their position as the economys favored children is safe, despite the wreckage they have caused. Stanley ONeal, the CEO of Merrill Lynch, pushed his firm heavily into the mortgage-backed-securities market at its peak in 2005 and 2006; in October 2007, he acknowledged, The bottom line is, weIgot it wrong by being overexposed to subprime, and we suffered as a result of impaired liquidity in that market. No one is more disappointed than I am in that result. ONeal took home a $14 million bonus in 2006; in 2007, he walked away from Merrill with a severance package worth $162 million, although it is presumably worth much less today. In October, John Thain, Merrill Lynchs final CEO, reportedly lobbied his board of directors for a bonus of $30 million or more, eventually reducing his demand to $10 million in December; he withdrew the request, under a firestorm of protest, only after it was leaked to The Wall Street Journal. Merrill Lynch as a whole was no better: it moved its bonus payments, $4 billion in total, forward to December, presumably to avoid the possibility that they would be reduced by Bank of America, which would own Merrill beginning on January 1. Wall Street paid out $18 billion in year-end bonuses last year to its New York City employees, after the government disbursed $243 billion in emergency assistance to the financial sector. In a financial panic, the government must respond with both speed and overwhelming force. The root problem is uncertaintyin our case, uncertainty about whether the major banks have sufficient assets to cover their liabilities. Half measures combined with wishful thinking and a wait-and-see attitude cannot overcome this uncertainty. And the longer the response takes, the longer the uncertainty will stymie the flow of credit, sap consumer confidence, and cripple the economyultimately making the problem much harder to solve. Yet the principal characteristics of the governments response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector. The response so far is perhaps best described as policy by deal: when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that
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everything is fine. In March 2008, Bear Stearns was sold to JP Morgan Chase in what looked to many like a gift to JP Morgan. (Jamie Dimon, JP Morgans CEO, sits on the board of directors of the Federal Reserve Bank of New York, which, along with the Treasury Department, brokered the deal.) In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morganall of which were brokered by the government. In October, nine large banks were recapitalized on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again). Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isnt) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple. Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks handsindeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved. Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand. The first AIG bailout, which was on relatively good terms for the taxpayer, was supplemented by three further bailouts whose terms were more AIG-friendly. The second Citigroup bailout and the Bank of America bailout included complex asset guarantees that provided the banks with insurance at below-market rates. The third Citigroup bailout, in late February, converted government-owned preferred stock to common stock at a price significantly higher than the market pricea subsidy that probably even most Wall Street Journal readers would miss on first reading. And the convertible preferred shares that the Treasury will buy under the new Financial Stability Plan give the conversion option (and thus the upside) to the banks, not the government. This latest planwhich is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high priceshas been heavily influenced by the financial sector, and Treasury has made no secret of that. As Neel Kashkari, a senior Treasury official under both Henry Paulson and Tim Geithner (and a Goldman alum) told Congress in March, We had received inbound unsolicited proposals from people in the private sector saying, We have capital on the sidelines; we want to go after [distressed bank] assets. And the plan lets them do just that: By marrying government capitaltaxpayer capitalwith private-sector capital and providing financing, you can enable
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those investors to then go after those assets at a price that makes sense for the investors and at a price that makes sense for the banks. Kashkari didnt mention anything about what makes sense for the third group involved: the taxpayers. Even leaving aside fairness to taxpayers, the governments velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change. As an unnamed senior bank official said to The New York Times last fall, It doesnt matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns. But theres the rub: the economy cant recover until the banks are healthy and willing to lend. The Way Out Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support. Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could causeLehman was small relative to Citigroup or Bank of Americais much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider. The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary. In some ways, of course, the government has already taken control of the banking system. It has essentially guaranteed the liabilities of the biggest banks, and it is their only plausible source of capital today. Meanwhile, the Federal Reserve has taken on a major role in providing credit to the economythe function that the private banking sector is supposed to be performing, but isnt. Yet there are limits to what the Fed can do on its own; consumers and businesses are still dependent on banks that lack the balance sheets and the incentives to make the loans the economy needs, and the government has no real control over who runs the banks, or over what they do. At the root of the banks problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they dont want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that arent enough to make them healthy (again, they cant reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either dont lend (hoarding money to
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shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably wont pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deterioratecreating a highly destructive vicious cycle. To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible. Nationalization would not imply permanent state ownership. The IMFs advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC intervention is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse. The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivershiprecognizing realityand transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump bankscleansed and able to lend safely, and hence trusted again by other lenders and investorscould then be sold off. Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5 trillion (or 10 percent of our GDP) in the long term. But only decisive government actionexposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health can cure the financial sector as a whole. This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. facesthe power of the oligarchyis just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy. Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs. Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impracticalsince well want to sell the
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banks quicklythey could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations. This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the efficiency costs of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to faila financial weapon of mass self-destruction explodes. Anything that is too big to fail is too big to exist. To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation. Laws put in place more than 100 years ago to combat industrial monopolies were not designed to address the problem we now face. The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. The Obama administrations fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelts trust-busting. Caps on executive compensation, while redolent of populism, might help restore the political balance of power and deter the emergence of a new oligarchy. Wall Streets main attractionto the people who work there and to the government officials who were only too happy to bask in its reflected gloryhas been the astounding amount of money that could be made. Limiting that money would reduce the allure of the financial sector and make it more like any other industry. Still, outright pay caps are clumsy, especially in the long run. And most money is now made in largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated. Regulation and taxation should be part of the solution. Over time, though, the largest part may involve more transparency and competition, which would bring financial-industry fees down. To those who say this would drive financial activities to other countries, we can now safely say: fine. Two Paths To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that Ive mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets. Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of moneyor at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the worlds most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well
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stumble along for yearsas Japan did during its lost decadenever summoning the courage to do what it needs to do, and never really recovering. A clean break with the pastinvolving the takeover and cleanup of major bankshardly looks like a sure thing right now. Certainly no one at the IMF can force it. In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign. Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerfulletting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you arent being fleeced? Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just cant seem to get into gear. The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that well be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, andbecause eastern Europes banks are mostly owned by western European banksjustifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administrations current budget are increasingly seen as unrealistic, and the rosy stress scenario that the U.S. Treasury is currently using to evaluate banks balance sheets becomes a source of great embarrassment. Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated. The conventional wisdom among the elite is still that the current slump cannot be as bad as the Great Depression. This view is wrong. What we face now could, in fact, be worse than the Great Depressionbecause the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late. Simon Johnson, a professor at MITs Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008. He blogs about the financial crisis at baselinescenario.com, along with James Kwak, who also contributed to this essay.
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Oldest Community yidongchong
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4 years ago
Simon Johnson trumpets his IMF tenure like it's a good thing. Those of us who grew up in Southeast Asia during the late 1990s remember well the IMF-mandated "austerity programs" and their terrible effects. These programs exacerbated the crisis--which was a currency crisis, not a fiscal one; most of the countried were running budget surpluses prior to the crash---inflicting untold human misery to ensure that hot capital could be repatriated to rich investors in the West. Countries such as Malaysia, which bucked the IMF's advice, ended up recovering much faster! You'd think this kind of thing would impart on Dr Johnson a sense of humility when it comes to dispensing economic advice, but it seems his skin is a little thicker than that...
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Janus Daniels
yidongchong 3 years ago
I agree, but "... Simon Johnson was Economic Counsellor and Director of the Research Department at the IMF from March 2007-August 2008..." not the 90s; see: http://www.imf.org/external/np...
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HCG Activator
Janus Daniels 2 years ago
I agree

oldgeezerpilot
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3 years ago
The US has succeeded in forcing the US Dollar upon the entire world. It has done so because Henry Kissinger convinced OPEC in 1973 to accept them exclusively for oil, and as oil has gone from $2 a barrel to $80, there is room for 40 times as much fiat money. Oh, and then there is the matter of enforcement. If you decide not to play the game, as
9/7/13 5:21 PM
Oh, and then there is the matter of enforcement. If you decide not to play the game, as Saddam Hussein did in 2000 when he offered his oil for either dollars or euros, the US military comes in and kills you.
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Astaghfirullah
oldgeezerpilot 2 years ago
Now explain how everyone in China quotes in US dollars. Are they too afraid we will come in and kill them?
2 wtkh
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3 years ago
Thanks for the analysis of the great financial debacle. I agree very much on that nationalization of the too-big-to-fail banks is premature as long as the impalable power of the politico-high-finance plutocracy is as diehard as a rock. There seems not much one can do except taking up the task to transform the 600-year long tried and failed system.
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3 years ago
10
Thanks for the analysis of the great financial debacle.
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Janus Daniels
3 years ago
In this painfully sharp analysis, I particularly enjoyed reading, "Regulation and taxation... transparency and competition... To those who say this would drive financial activities to other countries, we can now safely say: fine." I would add one word: "Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn't CARE."
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carolstewart
3 years ago
I read this months ago and again today and I am sad to say that now I really get it. Thank you Mr. Simon, I really understand your concern and am alarmed too. Disraeli, spoke about an "Oligarchy," "Two Worlds," he made the case for good government as important to all when not being run by a privileged few. This country needs to allow the voices as yourself, Ms. Born, Mr. Taibbi, Mr. Lewis, Ms. Warren and the others to numerous to mention, positions within the government because rules and reform mean nothing without individuals who are able to set good example in positions of trust.
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3 years ago
Walter Jesse Smith
It is a little satisfying to see a fringe of polite society beginning to grasp a faint glimpse of the undeniable picture of just how corrupt US politics has become. However, isn't it amazing at this late date in the oligarchy's increasingly obvious strangle hold over our core political institutions to hear almost nothing intelligible from the US universities' Political Science departments? How long since we've heard so much silence? Where is Larry Sabato with all his electoral genius now? Has Harold Bloom offered any help here? Others? Ugh, perhaps all those tenured political masters have suddenly discovered Chinese meditation.
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Joshua3141
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Walter Jesse Smith a year ago
Um, Harold Bloom is a English Literature prof. Unless default swaps are mentioned in Shakespeare, I very much doubt he'd be able to offer any insight.
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capthiltz
Walter Jesse Smith 3 months ago
The media is corporate controlled and many of the financial elite sit on multiple boards of directors. If a journalist or an academic speaks out, the story quickly gets squashed or buried so far back in a newspaper or the internet that the masses never see it. There are a few exceptions but not enough to keep the majority of us peasants from blissful ignorance.
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Walter Jesse Smith
3 years ago
Johnson writes: "But the U.S., of course, is the worlds most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for yearsas Japan did during its lost decadenever summoning the courage to do what it needs to do, and never really recovering." But then he goes on to the end discussing the bad news and the worse news. Which is all fair and reasonable - for an economist to do in an economic crisis. But the economic crisis is the result of a collapsed political culture. No quality of economic reform, no miracles, no magic, no organization of all the world's economic geniuses can breathe life back into a collapsed political order. This isn't religion, where being born again can happen for anyone. So the economic dimension of this crisis can be boiled down to two words, names, really: Barack Obama. No one doubts Obama's intelligence, no one to the left of Dick Cheney, anyway. If Barack Obama had the political confidence to do what he knows needs to be done, Dodd and the rest of the US Senate claque would rapidly fall into line. But that is like saying that if a frog had wings it wouldn't bump its butt. Stop wasting time on that dead critter, the US Government, and get on with creating something you can live with.
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3 years ago
Eurail Pass Guide
Wow..I just read this now and you were spot on. I'm just shook on investing at the moment and almost don't want to see what's coming next.
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3 years ago
SonoranSnoozer
While this is obviously the work of an expert, 2 things bug me about this article. One, I believe the undisciplined and risky lending brought about in large part by the community reinvestment act was the largest and most important factor in creating the crisis we find ourselves in. A lot of the rest of it was enabled by this undisciplined lending. Second, not a peep about irresponsible government spending and borrowing. Using borrowed money to pay for welfare-state entitlements is just crazy and unsustainable. To look at just the private sectors role in the current crisis only tells part of the story.
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brunssd
SonoranSnoozer 2 years ago
That CRA meme has been debunked many times in many places. It seems only to be taken seriously on Glenn Beck's chalkboard and those brains
9/7/13 5:21 PM
only to be taken seriously on Glenn Beck's chalkboard and those brains connected to same. As for the deficit, the Bush tax cuts while simultaneously pursuing two wars for oil set up the current situation and the reduced economic activity during Depression 2.0 have completed the picture. Oh, by the way, the US doesn't need to borrow to spend - you do, the states do but the USG doesn't for any economic reason.
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SonoranSnoozer 2 years ago
That's a very tired meme and is only being spouted by those whose eyes have not yet opened. The government's been hijacked, arguing about the details is irrelevant.
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sharonsj
SonoranSnoozer a year ago
Nobody forced the banks to make millions of NINJA loans (no income, no job, no assets), or convince people to take adjustable mortgages when they qualified for a standard mortgage, or falsify mortgage documents, or lie about payments, or turn mortgages into exotic financial instruments which they then got the ratings companies to falsely say were safe to buy. And your second paragraph doesn't have one damn thing to do with the banking system. You've been drinking too much Republican kool-aid or listening to fat Rush.
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me987654
SonoranSnoozer 6 months ago
That's simply false... debunked nonsense. You reveal yourself by bringing up welfare state tripe
2 The Geek
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3 years ago
Incredible article! Really explains why we are in the mess we are in: rich people being greedy, and doing everything they can, risking everything they can, for the sake of making more money; and then cry to the government when they fall flat on their faces. "Too big to fail" indeed. I agree: "Too big to fail" = "Too fat to exist". Its time to cut the fat out of the financial industry before the market has a heart attack. However, the "industry doctors" in Washington are owned by the market, and is too scared to tell big money to cut back. Its really sad when the CEO's of large financial institutions have salaries and bonus checks larger than the economies of several small countries combined. We really are in for a global economic depression that makes the Great Depression look like a dimple if things don't change. But maybe thats just what we need to finally get the greedy bankers out of Washington, and finally start making lasting changes. As long as Greed rules the markets, we are doomed to face the consequences.
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Robert Hamby
The Geek 2 years ago
You won't get the greedy bangksters out of Washington. Ain't gonna happen! Just as an oligarchy OWNS the Fed., so they own/control the pols,no matter which party happens to be in power,at any given moment! Money makes the world go 'round,andmoney/ power corrupts. Human nature assures a repeat of history, with dire economic consequences. This will eventually lead to more control in the hands of these oligarachs,not less!
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9/7/13 5:21 PM
Not LeBron James
3 years ago
Has nobody read The Shock Doctrine? How about Confessions of an Economic Hitman? Try either or both of those books before taking what anyone from the IMF says seriously.
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Not LeBron James 3 years ago
Ayacucho
I have read EHM which is certainly interesting. But I think you are misinterpreting who lay behind the EHM's actions--corporations with privileged access to government and multilateral credit agencies and export-import banks. This is a much broader set of people--and MUCH more influential than the IMF. The IMF is an enormous organization, full of policy makers and economists--but none really with substantial financial motivation to do anything too perverse. It's those with bottom lines--the corporations, lobbyists, and banks that YES, had motivation.
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Ayacucho
Not LeBron James 3 years ago
I have read EHM which is certainly interesting. But I think you are misinterpreting who lay behind the EHM's actions--corporations with privileged access to government and multilateral credit agencies and export-import banks. This is a much broader set of people--and MUCH more influential than the IMF. The IMF is an enormous organization, full of policy makers and economists--but none really with substantial financial motivation to do anything too perverse. It's those with bottom lines--the corporations, lobbyists, and banks that YES, had motivation.
2 timada 4
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3 years ago
Thank you!
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moon815
3 years ago
A very insightful article. I think the least Obama could do is provide more support for those affected, especially struggling families, some government supported debt advice, free for the general public, would go along way to helping the recovery.
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TraderCisco 1
3 years ago
Great article. Thanks!
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3 years ago
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joublou
yidongchong made the best comment. The article itself is very dissatisfying. I get the sense that there is much more to the story, and the author knows it, but is not letting us in on it. Same for the rest of the media. Why do these bubbles and crashes keep happening, and why is government's response always so lackadaisical? Why is the top 1% getting richer and richer at an accelerating pace while the rest of us become more and more insecure? Is there a connection? I would think so.
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Barbara Holtzman
joublou 3 years ago
Maybe that most of our "representatives" have more to gain by allowing enrichment of the wealthy than they have from any kind of normalization especially since so many of them are wealthy themselves!
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9/7/13 5:21 PM
liliag
3 years ago
It's weird how everyone knows how a financial crisis might occur but no one does anything to prevent it. Our leaders should avoid the transactions that might cause such downfalls on our country's economy. Lilia Gephardt @ VPS
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tracieoh
3 years ago
I just discovered this truly insightful article, and despite the lateness, I'd like to add something I believe the article lacked. That something would be the giant brick wall that regulators and anyone else trying to change the system hits every time. It's the belief that supporting Wall St. means you're supporting capitalism. And, whoever challenges Wall St. (or any other business in the U.S. these days) must be anticapitalist, aka socialist. Add to that the deliberate crippling of government services, and the subsequent vicious cycle of damning a clearly "failing system" and then diverting taxes from said system, we're left without our biggest defender against big businesses. Just reading some of your suggestions of more regulations made me think of all the hysterical shouting about "big government" overstepping its bounds again. So, the message is this: if you want capitalism to flourish, let's allow the businessmen to go about their business. Leaving out the details of how these "capitalists" feed from the gov't trough while dodging taxes.
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3 years ago
Like all establishment hacks, Johnson talks in circles. He seems to imply that a "ruling class" controls the government. Then he suggests that the government is going to impose "austerity" measures on the ruling class. There is a disconnect here. Our government is owned lock, stock, and barrell by Wall Street. Duh! The solution to this problem is simple: SECEDE from the government that Wall Street owns (and is soon to sell to the IMF), and reestablish currencies based on precious metals. CUT THE HEAD OFF THE SNAKE! Fiat currency is the root cause of this mess.
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3 years ago
Free webcam girls
Nice Post, Thanks for the analysis of the great financial debacle, thx.
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WWW.DEMOCRATZ.ORG
3 years ago
"In a gentle way, you can shake the world." - Mohandas Gandhi A new political Party I have created a LEGISLATIVE only political party. You remain in your party and also join ours to get needed legislation. We the people of the United States of America form this Liberal Democratic Party of the United States of America for the promotion of a progressive agenda for America. We generally support the progressive and liberal candidates that run in the regular Democratic party. We do not run candidates. We do not handle money. Our power comes from the unionization of our party members who tell GOP contributors and other regressive contributors that UNTIL you get the House and Senate and the President to enact our party platform at the present point into law YOU will lose our business as consumers. By doing this we avoid petitioning a corporate corrupted congress and go to the source of corruption and pressure them for the legislation under threat of massive boycotts.
9/7/13 5:21 PM
under threat of massive boycotts. Party members will send the party agenda by email to these GOP and regressive
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robertbrowne
3 years ago
The second time I have revisited this article the first time we were not in receipt of an EU/IMF bailout I new I lived in crony capitalist Ireland I knew we were turkeys heading for the chop and this article explains a lot but the one thing it does not explain is the nexus between unions who if not corrupt are subconsciously corrupt in that they follow a dictat and logic that will eventually ruin society and their members who after all play a significant part in how society is "supposed" to function. Ireland will not heal itself and will not come out of state bankruptcy until we get someone who is not afraid to confront the Public Sector unions plus the legal and political hegemonies themselves. As I write this we are on the eve of an election and as a people in denial we are about to exchange one centre right party with another and within weeks this country will have to declare a state of national emergency.
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2 years ago
Tjahjokartiko G
21 Dec 2009 ... United Nations Declares 2012 International Year of Cooperatives. NEW YORK, 21 December (Department of Economic and Social Affairs)
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2 years ago
Not to claim parity of opinion with a comment one 20th of your excellent article and half of a hundredth of your experience, but arent you at least a little biased with regard to the IMF's role here? "Governments go off track when the elites prevail, and their economic problems disappear when they resume control"? Really? Arent at least some of these crises caused by overly constrictive IMF policies in the first place? I mean what the IMF did in Haiti, essentially undercutting its economy and opening it to American imports - it seems to myself and many others that, if not explicitly, part of what the IMF does is to implicitly impose free market economics upon nations that might think otherwise, often with disastrous results. I mean what would the IMF have done to China in the 1970s and 80s? Do you think it would have been as successful in lifting China's position in the world as what China chose instead? I dont mean to say the IMF is a crony or does nothing right, but with the IMF's record of failed interventions, i think its time the IMF thought a little deeper about its own role
10 a1b5jj
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2 years ago
it is now 2 years since this article, and no action to break up the banks has taken place, and the power of the oligarchs over the government is stronger than ever, and it is more and more clear that we are in the midst of the third Republican Great Depression, and the contagion has engulfed Europe and the Middle East is setting the stage for WWIII. Karl Marx's view of capitalism as a structure doomed to failure seems to be as insightful as ever. "Financialization is the end-stage of capitalism', since once it takes hold there is no mechanism to dislodge it other than collapse and revolution.
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Sadiqa Dickens
a1b5jj 2 years ago
Page 21 of 25
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Sadiqa Dickens 3 Todd Boyle
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a1b5jj
Seems like the global protestors are taking Marx' second option.
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2 years ago
Simon Johnson is great-- I'm a fan. But this is small-think. The solutions to humanity's problems are readily available, and clearly visible outside of Simon's unquestioned assumptions. A) that banks serve some economic function. Truth is, they don't. The only reason our balances and our payments are still controlled by their ridiculously obsolete system of paper and physical buildings is regulatory capture. The telecom companies, computer companies who provide their entire infrastructure could have done it decades ago, for free, totally reliably. And the same goes for their other roles. B) that all humanity's productive activities need to be mediated by money as medium of exchange. They DON'T. Much of our daily life is already direct production for self, or family or others within enduring relationships-- and this ratio continues to grow! This is GOOD, folks. When the measured GDP based on money transactions shrinks, that is GOOD not bad. Ignore the propaganda. C,D,E.. too many errors in Simon Johnson's small-think, but what do you expect from The Atlantic? Guardian and megaphone for the NY-WashDC thing.
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auntiegrav
2 years ago
" If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late." Too late already: there just aren't the resources available for the 99% to become satisfied. The true future lies with those occupiers who have been living out of dumpsters and sleeping on the ground in rags. When they figure out that a life of luxury to them would be 5 acres and a mule, then this class war will be ended and a new world will begin. Until then, though, they are as dependent upon the System of systems as everyone else, and will fall prey to peer pressure and social conformity and compromise. Until humans figure out that they can thrive without Perpetual Progress being sold to them as Instant Gratification, they will be enslaved to the 'logic' of consumption: which enslaves them to money.
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Sarah Soska
2 years ago
@Daerice The US has succeeded..my neighbor's mother makes $70 every hour on the internet. She has been unemployed for 6 months but last month her paycheck was $8729 just working on the internet for a few hours. Read about it here http://4c3.de/b2j
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Domestic Assault Lawyer
2 years ago
These people manage their own little universe, some investments are clearly beneficial to the broader economy, but also began to make more and riskier bets.
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johngaltgsb
2 years ago
Solutions have been detailed by two very compelling documentaries: Zeitgeist: Moving Forward: ZEITGEIST: MOVING FORWARD | OFFICIAL RELEASE | 2011 ... Thrive: Thrive We need major systemic change. Tinkering with the system is not enough.
9/7/13 5:21 PM
We need major systemic change. Tinkering with the system is not enough.
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AlexLondon
2 years ago
Simply brilliant. Reign in capitalism NOW!
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AlexLondon 1
2 years ago
Simply brilliant. Reign in capitalism NOW!
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McGrew33
2 years ago
I loved this breakdown, and combined with Naomi Klein's book "Shock Doctrine", I am beginning to understand how this mess has developed. We have a fundamental problem that must be addressed if we are to turn the corner: our something-for-nothing ethos. Everyone has a secret desire to BE an oligarch! I'm not sure how we are to find enough integrity and compassion in our shared value system.
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ignatzthecat
2 years ago
I watched Simon Johnson recently on C-SPAN, "Banking Industry Regulation and Consumer Protection". Along with another witness he made some sense. Most of the others (out of 8 witnesses) in this session were blatant shills for the banking/insurance/investor "masters of the universe" kind. I urge readers here to read: "Wall Street and the Financial Crisis"; "Anatomy of a Financial Collapse". This is the Staff report: "US Senate Permanent Subcommittee on Investigations". Published by, "Cosimo Reports". This is 2012 and we are slowly (in my humble opinion) slipping more and more into a global financial pit that does not seem to have any solution for the common folk. Major global banks are still dithering in marking down their bad assets, those that they intentionally pedaled to other global banks and investors hoping to forestall their own penalties for being part of a very corrupt system. And, the politicians are also maniacally trying to COVER their ASSES for all the stupid financial decisions they have made over the past 30 years. BOTH parties. It doesn't take a genius to see what is happening here. Too much greed; on all parties to any of the disastrous mortgage failures.......from home-buyers (not all) through mortgage originators, brokers, investors, banks, all along the line.....TOO MUCH GREED! And, like they say, while the music is playing nobody wants to sit down! The, "Old Washington (Wall Street) Two-Step" And, we are all paying dearly. Occupy Washington DC!
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Ethan Hanson
10 months ago
Simon Johnson's whole story is very itresting and im 12 and i say that so u did a nice job man
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greg_gran
9 months ago
The elephant in the room that nobody can see - monopoly money. Fiat currencies are the destroyer of countries and civilizations. And we stupidly continue to accept fiat money as an honest medium for conducting trade. The cycle of thievery, pain, and misery will continue until the human race wakes up once and for all to this abomination.
Page 23 of 25
9/7/13 5:21 PM
"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." - Lord Acton
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52 comments Leave a message...

yidongchong 3 years ago

Janus Daniels 2 years ago

The Quiet Coup - Simon Johnson - The Atlantic

oldgeezerpilot 2 years ago

Thanks for the analysis of the great financial debacle.

Walter Jesse Smith

The Quiet Coup - Simon Johnson - The Atlantic

Walter Jesse Smith a year ago

Walter Jesse Smith 3 months ago

Walter Jesse Smith

Eurail Pass Guide

SonoranSnoozer 2 years ago

The Quiet Coup - Simon Johnson - The Atlantic

SonoranSnoozer 2 years ago