Almost everyone agrees that our financial system is broken. That our government is complicit in this broken system. That the American economy and the American people are suffering the consequences. And most people would even agree that it will take limits on capitalism and greed to fix it. So why hasn’t anything substantially changed?
Well, the answer is pretty much divided based on who you believe is willing and able to fix these problems.
The MSM like to portray this disagreement as a political divide between Democrats and Republicans. Others see this as an economic divide between the wealthy and the poor. But there is another, deepening divide that cuts across both party politics and personal wealth and that is the divide between those who believe President Obama and the current congress can or will fix things, and a growing group of those who don’t.
And the most telling portion of this latter group are some very knowledgeable Obama supporters who have lost their belief in “Hope and Change” and are now becoming increasingly vocal as to why our financial system is still broken.
A recent Bill Moyer’s Journal discussion with Rep. Marcy Kaptur and Simon Johnson on the near collapse of the US financial system, and where we stand and what we’ve learned – one year later was a perfect example. For 30 minute Kaptur and Johnson detailed together the dysfunction of Washington and Wall Street, but Moyer’s final question drew attention to this surprising divide:
From Bill Moyer’s Journal transcript:
BILL MOYERS: Does President Obama get it? MARCY KAPTUR: I don’t think President Obama has the right people around him. The poor man inherited a total mess, globally and domestically. I think some of the people that he trusted haven’t delivered. I urge him to get new generals. It’s time. SIMON JOHNSON: Louis the Fourteenth of France, a very powerful monarch, was famous for having many bad things, you know, happen under his rule. And people would always say, ‘If only Louis the Fourteenth knew. I’m sure he doesn’t know. If we could just tell him, he’d sort it out.’ You know. I’m skeptical.
Mr. Johnson and co-author James Kwak sounds more than skeptical of the Sun King in It’s Crunch Time: The Fight to Fix the Financial System Comes Down to This.
During the reign of Louis XIV, when the common people complained of some oppressive government policy, they would say, “If only the king knew . . . .” Occasionally people will make similar statements about Barack Obama, blaming the policies they don’t like on his lieutenants. But Barack Obama, like Louis XIV before him, knows exactly what is going on. Now is the time for him to show what his priorities are and how hard he is willing to fight for them. Elections have consequences, people used to say. This election brought in a popular Democratic president with reasonably large majorities in both houses of Congress. The financial crisis exposed the worst side of the financial services industry to the bright light of day. If we cannot get meaningful financial regulatory reform this year, we can’t blame it all on the banking lobby.
And least anyone thinks Mr. Johnson should be discounted as a partisan, here is more from the Moyer interview.
SIMON JOHNSON: I think the opportunity, the short term opportunity, was missed. There was an opportunity that the Obama Administration had. President Obama campaigned on a message of change. I voted for him. I supported him. And I believed in this message. And I thought that the time for change, for the financial sector, was absolutely upon us. This was abundantly apparent by the inauguration in January of this year. SIMON JOHNSON: And Rahm Emanuel, the President’s Chief of Staff has a saying. He’s widely known for saying, ‘Never let a good crisis go to waste’. Well, the crisis is over, Bill. The crisis in the financial sector, not for people who own homes, but the crisis for the big banks is substantially over. And it was completely wasted.The Administration refused to break the power of the big banks, when they had the opportunity, earlier this year. And the regulatory reforms they are now pursuing will turn out to be, in my opinion, and I do follow this day to day, you know. These reforms will turn out to be essentially meaningless.
Johnson discusses further impediments to changes in our financial system with Wall Street’s “mind control” and placement of a “inside man” in Tim Geithners Small Circle of Confidants.
Over the past 30 years Wall Street captured the thinking of official Washington, persuading policymakers on both sides of the aisle not to regulate (derivatives), to deregulate (Gramm-Leach-Bliley), to not enforce existing safety and soundness regulations (VaR), and to stand idly by while millions of consumers were misled into life-ruining financial decisions (Alan Greenspan). This was pervasive cultural capture or, to be blunter, mind control... Geithner’s defenders insist that his specific contacts while President of the NY Fed were a function of that position; “he was only doing his job.” But today’s AP report, based on looking at Geithner’s phone records, from the inauguration through July, suggest something else.... Geithner’s phone calls were primarily to and from people he knew well already–who had cultivated a relationship with him over the years, shared nonprofit board memberships, and participated in the same social activities. These are close professional colleagues and in some cases, presumably, friends. The Obama administration had to rescue large parts of the financial sector, given the situation they inherited. But it absolutely did not have to run the rescue in this exact fashion–bending over backwards to be nice to leading bankers and allowing their banks to become even larger. Saving top executives’ jobs under such circumstances is not best practice, it’s not what the U.S. advises to other countries, it’s not what the U.S. tells the IMF to implement when it helps clean up failed banking systems, and it’s not what the FDIC implements for failed banks under its auspices. The idea that you could leave big U.S. bank bosses in place (or let them get stronger politically) and do meaningful regulatory reform later has always seemed illusory–and this strategy now appears to be in serious trouble. But presumably Mr. Geithner’s financial advisers told him this was the right thing to do.
And as Simon Johnson points out, we’ve now gone from “too big to fail” to “too big to regulate”:
The problems before us now are not limited to the financial sector. Just as Brandeis argued, beginning with a piece entitled “Our Financial Oligarchy” in Harper’s Weekly, November 1913, we have allowed other parts of our economy to become “too big to regulate”. Any company that can set its own rules and then behave in a reckless fashion is potentially very damaging to both prosperity and democracy. Teddy Roosevelt thought you could regulate and control monopolies, and his idea that “big corporate” could be controlled by “big government” was taken forward with some success by FDR, the reforms of the 1930s, and the way our system operated for 30-40 years after World War II. But the complete breakdown of financial regulation under great political pressure in the 1980s and 1990s should serve as a wake-up call, both with regard to banking and much more broadly. We need to go back to Brandeis who, with his extensive experience on the interface between politics and law, thought that breaking up big firms was essential: “We believe that no methods of regulation ever have been or can be devised to remove the menace inherent in private monopoly and overweening commercial power” (Urofsky, p.346).
Maybe I am reading too much into all this, but to me Simon Johnson sounds like a man who has given up on “Hope and Change”.
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[also posted at No Quarter]
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