RSS Feed for This PostCurrent Article

13 Bankers and an American Oligarchy

The Weekly Standard has a very interesting article about reform in the banking industry. And despite the common perception that Republicans are the party of big money, the author, Christopher Caldwell, argues otherwise in a discussion of the new book 13 Bankers, by Simon Johnson and James Kwak.

So every time the president accuses Republicans of trying to “block progress” or of defying “common sense,” as he did that night, he is executing a dangerous tightrope walk. His party’s electoral fortunes depend on his making forceful calls for reform of our banking laws. His party’s fundraising fortunes depend on his ensuring that no serious reform—of the kind that endangers the big banks’ size and power—ever happens. That may be why the Democrats’ strategy of painting the Republicans as obstructionists on finance reform has gained little traction. By the same token, if Republicans ever did get serious about reforming the banks—and even about breaking up an industry that has turned into a Democratic war chest—they would put Democrats in mortal peril. There seems no chance of this. Obama’s taunts show a confidence, verging on certitude, that Republicans’ hypocrisy is as deep as his own.

What does it mean, the inability or unwillingness of either party to change or discipline the big banks in any way, even after all the havoc they have lately caused? In the year and a half since the implosion of Lehman Brothers, Simon Johnson, who was the chief economist of the International Monetary Fund in 2007 and 2008, is the only person to have come up with a plausible explanation. He has done so by examining the United States as an IMF analyst would examine some bankrupt basket-case of a country in what used to be called the Third World. Johnson believes that the leaders of the American finance industry have turned into the sort of oligarchy more typical of the developing world, and that they have “captured” the government and its regulatory functions. Johnson laid out this bombshell thesis in the Atlantic a year ago. 


Wow. Here’s the article from The Atlantic – The Quiet Coup.

Most countries rescued by the IMF are marked by tight links between the business elite and the political elite. They are oligarchies. Johnson defines oligarchy as a system whereby economic power can be translated into political power (and vice versa). When you try to fix a country dominated by an oligarchy, you immediately hit a frustrating paradox: Rescue plans make the oligarchy more powerful. Somebody has to decide which banks and industries get to use it, and which ones are set adrift. In this process, the cement company owned by the finance minister’s cousin does better than the cement company run by some schmuck in the hinterland. And it is not just that politically favored companies get the original infusion of IMF cash. Private investors can see what is going on and realize that it is “best to invest in the firms with the most political power (and hence the most assurance of being bailed out in a crisis).” So if the politically connected rich don’t pay, who does? “Most emerging-market governments,” according to Johnson, “look first to ordinary working folk—at least until the riots grow too large.”

Caldwell says the big banks should be broken up – nationalized in the short term, broken up and eventually sold with depositors protected and shareholders taking the loss. Caldwell then does a short reminder of some crises that precipitated the meltdown and revisits the real estate bubble, saying that the authors of 13 Bankers view of these is pretty conventional. Not conventional, however, is where the authors place most of the blame for the financial mess.

It is notable then, that for all their criticism of George W. Bush’s economic policy, Johnson and Kwak do not hold him responsible for the bankers’ takeover of the levers of power. Nor do they blame Ronald Reagan. Either Republican president would have been sympathetic to a deregulatory agenda, but Reagan confronted a recalcitrant Democratic Congress, and by the time Bush took office, Washington had already been offered up to Wall Street. Johnson and Kwak place the establishment of an American oligarchy squarely in the administration of Bill Clinton. “One of history’s curiosities,” they write, “is that this shift happened within a Democratic administration, headed by a president elected largely because of middle-class economic insecurity.” 

Caldwell reminds readers of the revolving door between government officials and bankers that became really apparent in the 90s, including Roger Altman, Richard Gephardt among others. Here’s an article at NQ about that revolving door and how even spouses make use of it.

. . . Ideologically, of course, Republicans have long been the party more amenable to financial deregulation—and that is an important consideration if you believe that democracy is functioning properly. If you believe it has degenerated into a kind of oligarchy, however, the important question becomes not the ideology of the respective parties but the allegiances of the oligarchs. What are the allegiances of our oligarchs? Which is their political party? 

Johnson locates the oligarchy in the upper reaches of the investment banking profession. What he doesn’t note is that these are overwhelmingly Democratic.
———-

That Democrats are the party of the oligarchy gets more, not less, obvious when you move beyond Wall Street. The cliché that Republicans are the rich people’s party makes a certain amount of common sense if you are just looking around your Middle American suburb. You will notice that the man making $200,000 a year is marginally more likely to vote Republican than his neighbor making $50,000. But in suburbia, the word “rich” is really a kind of slang, meaning “slightly better off.” Johnson isn’t talking about those people. He is talking about people who are rich-with-a-capital-R, the ones who can convert wealth into political power, the ones whose annual income is measured in millions, or tens of millions. Again, how do they vote, and who is their party?

Caldwell kindly provides a graph.

Interesting stuff. But Caldwell doesn’t spare Republicans.

That presents a challenge to the usual way of looking at things, doesn’t it? Republicans have been paying a high price in both public opinion and political coherence to defend the prerogatives of a class that despises them. It was to cosset just these people with tax cuts that George W. Bush destroyed the balanced budget. It would seem that Republicans are either an exceptionally idealistic political party (pursuing their ideology to the point of self-destruction) or an exceptionally foolish one (convinced that anyone with a great big pile of money is their friend). There may be another explanation. To paraphrase something Clinton aide David Dreyer said many years ago, Republicans have done Lord Acton one better—they’ve been corrupted by power they don’t even have.

Caldwell goes on to say Senate Banking Committee chair Dodd isn’t negotiating with Republicans for a tougher bill but a weaker one.

The sympathies of Johnson and Kwak are with the left of the Democratic party, specifically with the SAFE Banking Act sponsored by Senators Sherrod Brown of Ohio and Ted Kaufman of Delaware.

———
No book on the meltdown will make you angrier than 13 Bankers. On the off-chance that it doesn’t make you as angry as you’d like to be, though, Johnson and Kwak also have an excellent blog, Baseline Scenario, that addresses some of these questions in a more heated way.

Here at NQ, Linda Anselmi wrote the following three great posts on The Quiet Coup:

Bring on the Criminologists
The Wall Street Oligarchs – Part 1
Facing Down the Wall Street Oligarchs – Part 2

That article also caught my eye when I did a financial round-up, but without the detail Linda brought to it.

Many, if not most of us, no longer declare allegiance to a party or even to particular politicians, preferring to see if their deeds match their words.

So, if you check out this site, do let us know what you think. If you’ve a background in finance, what do you think of this analysis?

  • Anonymous

    It’s one oligarchy, the cartel central banks. Originated in Europe, not USA, and all connected. Read THE WAY THE WORLD REALLY WORKS, very illuminating.

  • Pingback: Tweets that mention 13 Bankers and an American Oligarchy : NO QUARTER -- Topsy.com

  • propertius

    Because the Gramm-Leach-Bailey Act (the final nail in the coffin of financial regulation, which repealed Glass-Steagall) passed both houses by a veto-proof majority (90-8 in the Senate).

    See: http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act

    It should also be noted that the initial stages of deregulation occurred  under the Carter and Reagan  Administrations (the Depository Institutions Deregulation Act of 1980, which deregulated interest rates and allowed bank mergers, thus creating “too big to fail” institutions, and the Garn-St. Germain Act of 1982, which among other things created the balloon mortgage). Garn-St.Germain Act, while written by Republicans (and, in fact, proposed by the Administration), was sponsored and supported by a large number of Democrats (including Steny Hoyer and Chuck Schumer), all of whom received large contributions over the years from the “financial services industry”  that was created by these bills.

    There’s a lot of blame to go around. There had been 11 previous attempts to repeal Glass_Steagall. The 1999 attempt succeeded primarily (IMHO) due to the $250 million in lobbying and $150 million in campaign contrbutions the financial services industry spent on it. You can read the whole dismal story at:

    http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html

    As for the chart of 2007-2008 contributions, industries that want to influence government want to back the winners. Given the sentiment in the country going into the 2008 cycle, it was pretty obvious the Dems were going to sweep the Presidency and Congress. These guys don’t give a damn about ideology, they just want politicians who will “stay bought”. Lest we forget, the News Corporation (parent of Fox News) PAC was a heavy Democratic contributer in the same cycle (53% of their donations went to Dems).

  • CentralMass

    Phil Gramm was the architect of the bill that ended Glass-Steagall,  The bill from the start had almost univrsal support from the republican controlled congress and nearly none from the democrats. It wasn’t until they let in changes to “redlining” that the dems came on board. Gramm wife approved exempting some swaps and derivatives from regulation when she headed the Commodity Futures Trading Commission.

    Let’s also not forget the Savings and Loan Scandal. Or the dozen years the republicans controlled congress with a republican president for 8 of them.

  • elaine

    I repeat: low interest rates & the CRA were the regulations for the banks.

  • elaine

    The Glass-Steagall repeal was a quid pro quo for the CRA tweet. The CRA became the regulation of the banking industry. The gov made the banks  lend & they knew they were being forced to lend to deadbeats in a housing bubble so they shuffed all the mortgages they could off on Wall Street where the sliceing & diceing occured & Freddy & Fannie were there with the guarentees.

    A moron could of figured out how this was going to end, you didn’t have to be a financial wiz. GWB made a limp wristed attempt to turn it around but got no cooperation & besides he was too busy with military adventurism to put up a real fight. Allen Greenspan & his low interest rates kept telling W it was all OK.

    What’s the problem here? Don’t y’all want the meek to inherit the earth? A strong central gov propped up by the oligarchs with the teaming hoades all living on the dole happily ever after.

  • My other site

    Obama is not kindred spirit to the Clintons.  Bite your tongue.  Obama is just a rogue demagogue.  At least the Clintons really cared about this country and the American People.

  • My other site

    I dare them to try this.  One thing you can count on about Obama:  he doesn’t have the guts to do anything really risky.

  • My other site

    Obama:  The Grand Leveler.  It’s his Commie roots at work.  Why is Bill Ayers on the lecture circuit?  Didn’t he blow up federal buildings in the ’60s?

  • My other site

    LisaB:  you really nailed it with this article.  I also want a front row seat at the treason trial.  There are so many grounds for trying Obama for treason, it will be hard to pick one.

  • Docelder

    Yes, thanks.

  • Docelder

    Yes, going back to the start of the republic the banksters have been an  issue for us.

  • Docelder

    I agree, it’s all of them. Clinton too is what I am saying here. Let us not ever forget he gave us NAFTA and ended Glass-Steagall. And let’s not forget who was running Fannie when they were buying up all those NINA, no income no asset home loans.

  • Craig Della Penna

    Just for reference sake the real villains in this ongoing trainwreck are the neocon Republicans who plotted and schemed to reduce governmental regulation of the markets to insignificance. We all dance around with our hair on fire when we hear “Reagan” or “Clinton” or “Bush” (and now “Obama”) but the monsters who put this in motion are: Grover Norquist, Richard Mellon Scaife, Phil Gramm, Bob Barr, Mitch McConnell and Newt Gingrinch (under whose watch in Congress this monstrosity was created and unleashed).
    Reagan was an amiable idiot, Clinton was way too ready to compromise but the these other folks knew exactly what they were doing and exactly what would happen when they did it.

    Let me know when their treason trials begin, I want a front row seat – and I’ll bring knitting needles…

  • EllenD

    But where are honest replacements?

  • EllenD

    Thanks Doceider. This is my favorite part.

    If we look like a developing country when our banking system is examined then guess what? We are becoming a developing counry. We are slipping into the third world while we worry about whether illegals are happy here.

    BTW – The immigration circus in LA last Saturday only drew half the turnout they projected. But of course we now have the non-bomb bomb in New York as our current distraction.

    I don’t know about you guys, but I never felt so financially squeezed before (and I’ve been through a lot). And the company I’m running is day-to-day. One sneeze and it’s gone.

  • catfsh

    Nice recommendation – will check it out!

    While I still think Bill Clinton understands the economy much better than our last, jeez, five presidents at the very least, I think this proves that EVEN Bill Clinton can get captured — at least momentarily — by the oligarchs.

    Also, had Bill Clinton been president as the economy crashed, I believe he would have been more responsive, and more effective in his response, than either Dubya or Ob. The Glass-Stegal was repealed at the end of Clinton’s second term.

  • sowsear

    I hope hell can hold them all…

  • sowsear

    Dario, Does your last name begin with a P?

  • sowsear

    I remember when some lady economist went before Congress to talk about redistribution of wealth and that involved seizing people’s assets, putting them into one gov. pool, and having the gov. pay out retirement funds equally to all retirees.. Some amount plus interest would be accumulated each year into an individual’s fund (as I remember), even those who had no funds to begin with.

  • sowsear

    I saw this and was bemused to note that Reagan was (once again) given a pass for having a ‘recalcitrant’ Democratic congress while Bill Clinton is blamed although he had – for six years – a venemous, hate-filled, howling mob of foaming-at-the-mouth right wingnuts who did everything in their power to destroy him and his presidency.  
     

    I’ve always said it’s a wonder Clinton had enough time away from court to get anything done…

  • Obamastolemyhealthcare

    I saw the first 2 hours of this in a college politcal science class recently and plan to watch the rest.  It is very interesting.  It is a 6 hour movie so that is why I have not had a chance to watch it all.  I was shocked about the secret meetings Clinton had with Big Bankers and how they knew he could get done what they wanted so they backed him.  The look on some of their faces seemed really seedy to me.  Anyway, this is very informative and I do see Bill Clinton very differently now.  If you can watch this it is called, Commanding Heights the battle for the world economy and it is fascinating, frightening and infuriating how they play with the world for their gain, at least the first couple of hours I saw of it:

    http://www.pbs.org/wgbh/commandingheights/hi/index.html

  • arabella trefoil

    I have plenty of toilet paper, PineSol, and good cotton rags. I’m totally ready for the coming shit storm.

    Good people, I’ve got your backs. My friends at No Quarter will be availed of my clean-up charges at no cost.

    Everyone else: I’ll send you a quote. I charge a lot of money, but it’s worth it. I include coliform testing as part of my services.

  • felizarte

    Discussion of oligarchy should really start with the owners/shareholders of the Federal Reserve Board, an entity made to look like a govt. agency but is actually a private corporation whose shareholders are too moneyed and powerful they can afford to be anonymous.  I won’t be surprised if they also own most of the multinationals.

  • Peggy Sue

    No Doc.  It isn’t just Republicans.  But that doesn’t mean it doesn’t include Republicans or that resting the lion’s share of the blame at Bill Clinton’s feet makes any sense.

    If we want to point fingers of blame, it’s an equal opportunity food fight.  And the Senate financial reform balking right now is bipartisan.  Our legislative reps [with a few exceptions] have no desire to kill the Golden Goose.

    And that’s why we’re royally screwed and why ping-pong politics is a useless enterprise.

  • Peggy Sue

    This has been on the radar for quite some time.  If you remember at the start of the economic nosedive in 2008, Nancy Pelosi suggested making people whole to pre-collapse balances and converting 401ks to US Treasuries.

    There’s a shit-storm coming.  Batten down the hatches.  It’s worse than we think.

  • Dario

    To look at the financial institutions in a vacuum is to ignore that other industrustries, like the oil corporations have a stranghold on the GOP.  The fact is that corporations have a stranghold of our government because they own the politicians.  Both parties workk for different industries, but the result is the same.  Moreover, to look at one year is also misleading.  Wall Street knows when one party is out of favor and has a great chance of being elected.  It happened in 2007-2008 because the 2006 elections changed the wave.  Both parties suck up Wall Street money like is mother’s milk.  Unless we look at the corruption of both parties, will never throw the bums out.

  • HARP

    Republicans Sound Alarm on Administration Plan to Seize 401(k)s

    In February, the White House released its “Annual Report on the Middle Class” containing new regulations favored by Big Labor including a bailout of critically underfunded union pension plans through “retirement security” options.
    The radical solution most favored by Big Labor is the seizure of private 401(k) plans for government disbursement — which lets them off the hook for their collapsing retirement scheme.  And, of course, the Obama administration is eager to accommodate their buddies.

    http://www.humanevents.com/article.php?id=36823

  • Docelder

    But, which President signed off on NAFTA and sgned off on killing Glass-Steagall? It isn’t just republican Presidents. The article is dead on right. The democrats are more in the pockets of oligarchs than republicans. I think because republicans are more likely to have a libertarian streak in them. This was always my attraction to republicans. I particularly like freedom myself, and more of it not less of it.

  • Craig Della Penna

    “It is notable then, that for all their criticism of George W. Bush’s economic policy, Johnson and Kwak do not hold him responsible for the bankers’ takeover of the levers of power. Nor do they blame Ronald Reagan. Either Republican president would have been sympathetic to a deregulatory agenda, but Reagan confronted a recalcitrant Democratic Congress, and by the time Bush took office, Washington had already been offered up to Wall Street. Johnson and Kwak place the establishment of an American oligarchy squarely in the administration of Bill Clinton. “One of history’s curiosities,” they write, “is that this shift happened within a Democratic administration, headed by a president elected largely because of middle-class economic insecurity.”

    I saw this and was bemused to note that Reagan was (once again) given a pass for having a ‘recalcitrant’ Democratic congress while Bill Clinton is blamed although he had – for six years – a venemous, hate-filled, howling mob of foaming-at-the-mouth right wingnuts who did everything in their power to destroy him and his presidency.

    As to the larger picture,

    We will have to have pretty severe, not to say ‘draconian’, rules and laws with merciless enforcement for at least 2 to 3 generations before we can reasonably expect a sea change in attitudes and mores to become the norm. We see just this kind of timeline when an attempt is made to switch nation-states from one or another form of dictatorship to some kind of democratic governance.

    The same logic applies here: when bankers truly see no conflict as they blatantly cheat their clients, when pillage and plunder of entire countries is regarded as standard business practice, when C-suite executives consider it their obligation to secure short-term profits at the expense of anything and everyone else (at the behest of their speculator investors). Then what we have is an ingrained culture of deceit and avarice which will not respond to a casual spring cleaning.

    What we need is an overall, overhaul of the entire financial and governmental system on massive, constitutional level. One that we must be prepared to support for the generational timeline it will take to effect.

    That sounds drastic but the alternative is to apply patching plaster when the roof beams are rotten. The current situation does not get better if we prevaricate – it gets worse, much worse and very quickly too.

  • Peggy Sue

    Excellent article, Lisa.  I think “13 Bankers” is one of those must-read books if we’re going to approach anything like a handle on understanding what has happened and continues unabated–the incestuous link between Wall St. and DC, which is becoming ever more tangled and destructive.  The book’s on my reading list.

    As addendum, there’s an article up at Baseline Scenario this morning [this is Johnson and Kwak], regarding the SAFE Banking Act before the Senate now, a 20-page piece of legislation [introduced by Ted Kaufman] that would put the brakes on what’s going on and the refusal of the Senate to act on either side of the aisle. The debate on financial reform is fake, more theater for the masses.

    This is the conundrum we face right now: How can we expect a thoroughly corrupt legislative body to act in behalf of its citizenry?

    We have entered dark, dark times.  Link to the additional article is here:

    http://baselinescenario.com/2010/05/04/fake-debate-the-senate-will-not-vote-on-big-banks/#more-7382

    Thanks for the article!

  • Docelder

    The Clinton’s fingerprints are all over things. Don’t get me started. But I had forgotten a lot, which is all coming back about things like Americorps and like outcome based education. Basically, it’s big brother government. I think this is why Obama is such a kindred spirit.

  • Docelder

    Fannie was buying a lot of those bundled toxic home loans. We created the problem by giving fannie the money cheaper than everybody else. So, they went into the business of money and not loans, using their cheaper rates as leverage. So banks bundled these crazy no income and no asset loans into packages and fannie bought them. It was all good until the bubble burst. But if fannie wasn’t buying these banks wouldn’t be gambling with their own money. They didn’t gamble at all. They knew fannie was buying. So the root cause in part was the favorable rate given fannie.

  • Sassy

    And the affordable housing legislation was passed during Clinton’s presidency, as ACORN spread it’s roots from Arkansas.

  • jwrjr

    Let me see if I understand this correctly.  Under Bush the Republicans wanted banking reform (especially “Fanny Mae” and “Freddy Mac”).  The Democrats blocked it.  So it the Repubs’ fault that there was no reform.

  • Docelder

    This is excellent information. We are easily distracted in this country by whether golfers are playing golf again or whether they are getting any, but these are just distractions compared to truth like this. There are a lot of myths about our political and banking system. The greatest among them is that the democrat party is the party of poor people. Poor people enable democrats, but look at the representatives… i.e. Ted Kennedy and his 50 year reign as Viceroy of Massachusetts. Once we realize that money drives politics, and it does we can just follow that money. It is dirt simple. The Wall Street bailouts helped Goldman, but ended Lehman and it selectively lined pockets of an oligarchy elite. Health reform will line the pockets of insurers and pharma. If we look like a developing country when our banking system is examined then guess what? We are becoming a developing counry. We are slipping into the third world while we worry about whether illegals are happy here. Gimme a damn break. The system is broken, large corporations have become oligarchic through legislative influence and in return, their lobbyisis write the laws now and our representatives don’t care enough to even read them first. Maybe they know the system is broken, maybe they know that even if they changed they couldn’t change a thing, maybe this is why so many are leaving now.

  • Linda Anselmi

    Great post LisaB.  I’ve got this book on my must read list.

  • creeper

    LisaB, this is a good post.  Thank you very much.

    An observation:  All politicians are bought and paid for by the banks.  Reform of banks is impossible until we reform campaign finance.

    And a question:  Why did Clinton roll over for the bankers?