“13 Bankers” by Simon Johnson and James Kwak
In a nutshell
“13 Bankers” is about how the powerful financial industry/oligarchy has burrowed itself deeply into government policymaking circles and under the banners of “free-markets and capitalism” they have succeeded in creating an almost regulation-free system where they get most of the upside while the taxpayer pays the bills on the downside. And nothing has really changed since the latest crash. The authors write that “We have been here before. The confrontation between concentrated financial power and democratically elected government is as old as the American republic. History shows that finance can be made safe again. But it will be quite a fight”. (I am not usually one for conspiracy theories, but the authors are quite convincing. Thanks to WET for recommending this interesting book.)
A few quotes to whet your appetite:
-The “Wall Street- Treasury complex” according to Jagdish Bhagwati was created by the combination of “money, people and prestige” and “the ideology of free markets “lulled many economists and policymakers into complacency pitfalls that certain markets inherently pose “while the revolving door placed representatives of Wall Street into influential positions in Washington”.
-Just as “an emerging market oligarchy uses its political power…buying national assets at below market prices,(etc)…in the United States the banking oligarchy (and its allies in the real estate industry) used its political power to protect its golden goose from interference and to clear away any remaining obstacles to its growth”. (Examples include: repeal of Glass Steagal Act in 1999 but much of it was significantly weakened even before, successful prevention regulation of derivatives, allowing banks to increase their leverage by the use of derivatives like credit default swaps, creation of an environment for rating agencies where banks were able to ‘shop’ for ratings, sold to regulators the idea that financial markets were best left to police themselves, unregulated mortgage lending especially subprime.
-The bailout of LTCM led the Fed (Mr. Greenspan) believe that it can handle any collapse should it occur
-“Enron and Worldcom showed both the consequences of hyperactive financial innovation and the failure of self-regulation by the free-market”
-The 2007-2009 financial crisis was enabled by the “rise of the financial sector over the past three decades. Members of the Washington establishment bought into Wall Street’s vision of free-flowing capital and unfettered innovation. Whether they were true believers or cynics out to maximize their campaign contributions or their future earning potential, policymakers helped the major banks by relaxing regulations, declining to enforce existing regulations, or neglecting to regulate new markets.”
-After the bailout of Bear Stearns, Mr. Bernanke expected that “investors and counterparties had had time to take precautionary measures. Unfortunately those institutions had learned the opposite lesson- that government would not let Lehman collapse”. (…and then it did..but had to step in save all the others..)
-When government bailed out AIG, much of the bailout money ended up paying 100% on the dollar to Goldman, Merrill Lynch, Bank of America, Citigroup and several major foreign banks. “The AIG bailout illustrated the ability of major banks to take advantage of the government’s situation.”
-“on issue after issue, the big banks got what they wanted, and the taxpayer got the bill.”
-On the subject of the “sweeping” regulatory reforms “they did little to address the problem at the heart of the financial system: the enormous growth of the top-tier financial institutions and the corresponding increase in their in their economic and political power”