Is this crisis symptomatic of something else?
Simon Johnson’s article, The Quiet Coup, in the May issue of The Atlantic, is a must read for anyone following the current economic crisis. Mr. Johnson’s credentials are impressive. He was the chief economist at the International Monetary Fund (IMF), and currently is a professor at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. The article is one of those rare, brilliant and factual analyses that connects more dots than anything I’ve read since last October.
Mr. Johnson first lays out the context for countries that have found themselves in the same predicament as the United States is today. His IMF background offers a first-hand experience of not only what financial crises look like, but also what may have caused them in the first place. While crises may differ from country to country, from hyper inflation to loss of new credit, “…all of these crisis look similar.” They look similar because of one common denominator: “The powerful elites within them overreached in good times and took too many risks.” These elites may be oligarchs in Russia or powerful families in Thailand and Indonesia. The financial crisis in the US has the same denominator – financial oligarchs. Regardless of the political party in power, they benefited from increasing lack of regulation generating “an ever-increasing volume of transactions founded on a relatively small base of actual physical assets.” The crash was inevitable.
Government’s response to the financial crisis, according Mr. Johnson, was characterized by “delay, lack of transparency, and an unwillingness to upset the financial sector.” Late-night deals, often over weekends, exposed the ties of the banking club that tried, yet again, to use taxpayers’ money to cover up their mistakes. Mr. Johnson suggests what the IMF would recommend to get us out of this mess: “Nationalize troubled banks and break them up as necessary.” Meaning: “Break the oligarchy.” The proposition wouldn’t come cheap to taxpayers. But it would kill the old ties held together by the culture of greed. The solution would replace the oligarchs at the top, to make banking boring, and respectable again.
Speaking of respectable, the financial services industry now shares the lowest industry ranking with the tobacco industry, with just 11% of the public giving positive ratings to these two industries, according to the 10th Annual Harris Interactive Reputation Quotient (RQ) survey. And that gives the term “toxic assets” a whole new meaning.
