Financial Oligarchy Ruining The Economy: The Skies Are Brightening. And The Horizon Is Beckoning Once More."

Monty Pelerin / EconomicNoise.com

 US News

The quote used in the title is from Barack Obama about three years ago. It obviously was incorrect.

The past is a guide to the future. But so are views of the future from the past. How prescient were some in terms of understanding what was coming? Identifying someone based on his prior assessment of the future can provide a useful way to value his current opinions.

The article below is almost three years old. It provides Simon Johnson’s take on where we were heading then. As opposed to Mr. Obama’s quote, Mr. Johnson fares quite well in this judgment. To be fair, Mr. Johnson was able to say what he believed. Mr. Obama was only shortly removed from his Greek columns then. Whether Mr. Obama believed what he said or he said it for political reasons is irrelevant. No one should believe any forecaster with a vested interest in influencing the outcome.

FINANCIAL OLIGARCHY RUINING THE ECONOMY

“… recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.” The Atlantic, May 2009

Many believe that the US has become a financial oligarchy with large financial firms running the government. There is certainly evidence to that effect. Bailouts focused almost exclusively on “big banks.” The cozy interchange of personnel between Wall Street and Government aroused the ire of citizens and some in Congress. “Government Sachs”, once humorous, is now a pejorative. Anger over the secrecy of the Federal Reserve mounts. Corruption and cronyism dominate discussions of what is wrong in Washington.

Simon Johnson is a Professor at MIT (Sloan School of Management) and former Chief Economist at the International Monetary Fund. Dr. Johnson’s experience and expertise provide him with a unique perspective on our economic problems. In The Quiet Coup, an article from Atlantic magazine, he shares his views.

Dr. Johnson observed similar financial crises at the IMF and as consultant to various governments. Usually these crises were in third-world economies. Despite the size of our economy , Johnson believes the current and developing financial condition of the US is little different from an emerging country. According to Dr. Johnson, the common denominator in all financial crises is governmental capture by private, powerful interests. In our case, the oligarchy is the fusion of the financial sector and the government.

[T]here’s 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.

In his role at the IMF Dr. Johnson would have recommended the following actions to solve our problem: 1. Nationalize the major banks, clean up their balance sheets and then sell them back to the private sector in smaller pieces; and 2. Change the regulatory apparatus so that banks could never again become big, capture the political class or engage in risks beyond those considered prudent.

While third-world countries go to the IMF begging for funds, we are too big to be bailed out by the IMF or any other entity. Similarly, we are too powerful (some would say arrogant) to allow outsiders to impose a solution to “clean up” our government. Because there is no outside force, US problems must be solved internally.