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13 Bankers: The Wall Street Takeover and the Next Financial Meltdown [Anglais] [Broché]

Simon Johnson

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Extrait

They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.
—F. Scott Fitzgerald, The Great Gatsby

INTRODUCTION

My administration is the only thing between you and the pitchforks.
—Barack Obama, March 27, 2009


Friday, March 27, 2009, was a lovely day in Washington, D.C.—but not for the global economy. The U.S. stock market had fallen 40 percent in just seven months, while the U.S. economy had lost 4.1 million jobs.2 Total world output was shrinking for the first time since World War II.

Despite three government bailouts, Citigroup stock was trading below $3 per share, about 95 percent down from its peak; stock in Bank of America, which had received two bailouts, had lost 85 percent of its value. The public was furious at the recent news that American International Group, which had been rescued by commitments of up to $180 billion in taxpayer money, was paying $165 million in bonuses to executives and traders at the division that had nearly caused the company to collapse the previous September. The Obama administration’s proposals to stop the bleeding, initially panned in February, were still receiving a lukewarm response in the press and the markets. Prominent economists were calling for certain major banks to be taken over by the government and restructured. Wall Street’s way of life was under threat.

That Friday in March, thirteen bankers— the CEOs of thirteen of the country’s largest financial institutions— gathered at the White House to meet with President Barack Obama.* “Help me help you,” the president urged the group. Meeting with reporters later, they toed the party line. White House press secretary Robert Gibbs summarized the president’s message: “Everybody has to pitch in. We’re all in this together.” “I’m of the feeling that we’re all in this together,” echoed Vikram Pandit, CEO of Citigroup. Wells Fargo CEO John Stumpf repeated the mantra: “The basic message is, we’re all in this together.” What did that mean, “we’re all in this together”? It was clear that the thirteen bankers needed the government. Only massive government intervention, in the form of direct investments of taxpayer money, government guarantees for multiple markets, practically unlimited emergency lending by the Federal Reserve, and historically low interest rates, had prevented their banks from following Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual, and Wachovia into bankruptcy or acquisition in extremis. But why did the government need the bankers?

Any modern economy needs a financial system, not only to process payments, but also to transform savings in one part of the economy into productive investment in another part of the economy. However, the Obama administration had decided, like the George W. Bush and Bill Clinton administrations before it, that it needed this financial system— a system dominated by the thirteen bankers who came to the White House in March. Their banks used huge balance sheets to place bets in brand-new financial markets, stirring together complex derivatives with exotic mortgages in a toxic brew that ultimately poisoned the global economy. In the process, they grew so large that their potential failure threatened the stability of the entire system, giving them a unique degree of leverage over the government. Despite the central role of these banks in causing the financial crisis and the recession, Barack Obama and his advisers decided that these were the banks the country’s economic prosperity depended on. And so they dug in to defend Wall Street against the popular anger that was sweeping the country— the “pitchforks” that Obama referred to in the March 27 meeting.

To his credit, Obama was trying to take advantage of the Wall Street crisis to wring concessions from the bankers— notably, he wanted them to scale back the bonuses that enraged the public and to support his administration’s plan to overhaul regulation of the financial system. But as the spring and summer wore on, it became increasingly clear that he had failed to win their cooperation. As the megabanks, led by JPMorgan Chase and Goldman Sachs, reported record or near-record profits (and matching bonus pools), the industry rolled out its heavy artillery to fight the relatively moderate reforms proposed by the administration, taking particular aim at the measures intended to protect unwary consumers from being blown up by expensive and risky mortgages, credit cards, and bank accounts. In September, when Obama gave a major speech at Federal Hall in New York asking Wall Street to support significant reforms, not a single CEO of a major bank bothered to show up. If Wall Street was going to change, Obama would have to use (political) force.

Why did this happen? Why did even the near-collapse of the financial system, and its desperate rescue by two reluctant administrations, fail to give the government any real leverage over the major banks?

By March 2009, the Wall Street banks were not just any interest group. Over the past thirty years, they had become one of the wealthiest industries in the history of the American economy, and one of the most powerful political forces in Washington. Financial sector money poured into the campaign war chests of congressional representatives. Investment bankers and their allies assumed top positions in the White House and the Treasury Department. Most important, as banking became more complicated, more prestigious, and more lucrative, the ideology of Wall Street— that unfettered innovation and unregulated financial markets were good for America and the world—became the consensus position in Washington on both sides of the political aisle. Campaign contributions and the revolving door between the private sector and government service gave Wall Street banks influence in Washington, but their ultimate victory lay in shifting the conventional wisdom in their favor, to the point where their lobbyists’ talking points seemed self-evident to congressmen and administration officials. Of course, when cracks appeared in the consensus, such as in the aftermath of the financial crisis, the banks could still roll out their conventional weaponry— campaign money and lobbyists; but because of their ideological power, many of their battles were won in advance.

The political influence of Wall Street helped create the laissez-faire environment in which the big banks became bigger and riskier, until by 2008 the threat of their failure could hold the rest of the economy hostage. That political influence also meant that when the government did rescue the financial system, it did so on terms that were favorable to the banks. What “we’re all in this together” really meant was that the major banks were already entrenched at the heart of the political system, and the government had decided it needed the banks at least as much as the banks needed the government. So long as the political establishment remained captive to the idea that America needs big, sophisticated, risk-seeking, highly profitable banks, they had the upper hand in any negotiation. Politicians may come and go, but Goldman Sachs remains.


The Wall Street banks are the new American oligarchy— a group that gains political power because of its economic power, and then uses that political power for its own benefit. Runaway profits and bonuses in the financial sector were transmuted into political power through campaign contributions and the attraction of the revolving door. But those profits and bonuses also bolstered the credibility and influence of Wall Street; in an era of free market capitalism triumphant, an industry that was making so much money had to be good, and people who were making so much money had to know what they were talking about. Money and ideology were mutually reinforcing.

This is not the first time that a powerful economic elite has risen to political prominence. In the late nineteenth century, the giant industrial trusts— many of them financed by banker and industrialist J. P. Morgan— dominated the U.S. economy with the support of their allies in Washington, until President Theodore Roosevelt first used the antitrust laws to break them up. Even earlier, at the dawn of the republic, Thomas Jefferson warned against the political threat posed by the Bank of the United States.

In the United States, we like to think that oligarchies are a problem that other countries have. The term came into prominence with the consolidation of wealth and power by a handful of Russian businessmen in the mid-1990s; it applies equally well to other emerging market countries where well-connected business leaders trade cash and political support for favors from the government. But the fact that our American oligarchy operates not by bribery or blackmail, but by the soft power of access and ideology, makes it no less powerful. We may have the most advanced political system in the world, but we also have its most advanced oligarchy.

In 1998, the United States was in the seventh year of an economic boom. Inflation was holding steady between 2 and 3 percent, kept down by the twin forces of technology and globalization. Alan Greenspan, probably the most respected economist in the world, thought the latest technology revolution would allow sustained economic growth with low inflation: “Computer and telecommunication based technologies are truly revolutionizing the way we produce goods and services. This has imparted a substantially increased degree of flexibility into the workplace, which in conjunction with just-in-time inventory strategies and increased availability of products from around the world, has kept costs in check through increased productivity.”8 Prospects for the American economy had rarely seemed better.

But Brooksley Born was worried.9 She was head of the Commodity Futures Trading Commission (CFTC), the agency responsible for financial contracts known as derivatives. In particular, she was worried about the fast-growing, lightly regulated market for over-the-counter (OTC) derivatives— customized contracts in which two parties placed bets on the movement of prices for other assets, such as currencies, stocks, or bonds. Although Born’s agency had jurisdiction over certain derivatives that were traded on exchanges, it was unclear if anyone had the authority to oversee the booming market for custom derivatives.

In 1998, derivatives were the hottest frontier of the financial ser - vices industry. Traders and salesmen would boast about “ripping the face off ” their clients— structuring and selling complicated deals that clients did not understand but that generated huge profits for the bank that was brokering the trade.10 Even if the business might be bad for their clients, the top Wall Street banks could not resist, because their derivatives desks were generating ever-increasing shares of their profits while putting up little of the banks’ own capital. The global market for custom derivatives had grown to over $70 trillion in face value (and over $2.5 trillion in market value)† from almost nothing a decade before.

The derivatives industry had fought off the threat of regulation once before. In 1994, major losses on derivatives trades made by Orange County, California, and Procter&Gamble and other companies led to a congressional investigation and numerous lawsuits. The suits uncovered, among other things, that derivatives salesmen were lying to clients, and uncovered the iconic quote of the era, made by a Bankers Trust employee: “Lure people into that calm and then just totallyf——’em.” Facing potential congressional legislation, the industry and its lobbying group fought back, aided by its friends within the government. The threat of regulation was averted, and the industry went back to inventing ever more complex derivatives to maintain its profit margins. By 1997, the derivatives business even had the protection of Greenspan, who said: “[T]he need for U.S. government regulation of derivatives instruments and markets should be carefully re-examined. The application of the Commodity Exchange Act to off-exchange transactions
between institutions seems wholly unnecessary— private market regulation appears to be achieving public policy objectives quite effectively and efficiently.” In other words, the government should keep its hands off the derivatives market, and society would benefit.

But Born was not convinced. She worried that lack of oversight allowed the proliferation of fraud, and lack of transparency made it difficult to see what risks might be building in this metastasizing sector. She proposed to issue a “concept paper” that would raise the question of whether derivatives regulation should be strengthened. Even this step provoked furious opposition, not only from Wall Street but also from the economic heavyweights of the federal government—Greenspan, Treasury Secretary (and former Goldman Sachs chair) Robert Rubin, and Deputy Treasury Secretary Larry Summers. At one point, Summers placed a call to Born. As recalled by Michael Greenberger, one of Born’s lieutenants, Summers said, “I have thirteen
bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since World War II.”

Ultimately, Summers, Rubin, Greenspan, and the financial industry won. Born issued the concept paper in May, which did not cause a financial crisis. But Congress responded inOctober by passing amoratorium prohibiting her agency from regulating custom derivatives. In 1999, the President’s Working Group on Financial Markets— including Summers, Greenspan, SEC chair Arthur Levitt, and new CFTC chair William Rainer— recommended that custom derivatives be exempted from federal regulation. This recommendation became part of the Commodity Futures Modernization Act, which President Clinton signed into law in December 2000.

We don’t know which thirteen bankers were meeting with the deputy treasury secretary when he called Brooksley Born; nor do we know if it was actually twelve or fourteen bankers, or if they were in his office at the time, or if Summers was actually convinced by them—more likely he came to his own conclusions, which happened to agree with theirs. (Summers did not comment for the Washington Post story that reported the phone call.) Nor does it matter.

What we do know is that by 1998, when it came to questions of modern finance and financial regulation, Wall Street executives and lobbyists had many sympathetic ears in government, and important policymakers were inclined to follow their advice. Finance had be - come a complex, highly quantitative field that only the Wall Street bankers and their backers in academia (including multiple Nobel Prize winners) had mastered, and people who questioned them could be dismissed as ignorant Luddites. No conspiracy was necessary. Even Summers, a brilliant and notoriously skeptical academic economist (later to become treasury secretary and eventually President Obama’s chief economic counselor), was won over by the siren song of financial innovation and deregulation. By 1998, it was part of the worldview of the Washington elite that what was good for Wall Street was good for America.



The aftermath is well known. Although Born’s concept paper did not cause a financial crisis, the failure to regulate not only derivatives, but many other financial innovations, made possible a decade-long financial frenzy that ultimately created the worst financial crisis and deepest recession the world has endured since World War II.

Free from the threat of regulation, OTC derivatives grew to over $680 trillion in face value and over $20 trillion in market value by 2008. Credit default swaps, which were too rare to be measured in 1998, grew to over $50 trillion in face value and over $3 trillion in market value by 2008, contributing to the inflation of the housing bubble; when that bubble burst, the collapse in the value of securities based on the housing market triggered the financial crisis. The U.S. economy contracted by 4 percent, financial institutions took over one trillion dollars of losses, and the United States and other governments bailed out their banking sectors with rescue packages worth either hundreds of billions or trillions of dollars, depending on how you
count them.

Brooksley Born was defeated by the new financial oligarchy, symbolized by the thirteen bank CEOs who gathered at the White House in March 2009 and the “thirteen bankers” who lobbied Larry Summers in 1998. The major banks gained the wealth and prestige necessary to enter the halls of power and sway the opinions of the political establishment, and then cashed in that influence for policies— of which derivatives nonregulation was only one example— that helped them double and redouble their wealth while bringing the economy to the edge of a cliff, from which it had to be pulled back with taxpayer money.

The choices the federal government made in rescuing the banking sector in 2008 and 2009 also have significant implications for American society and the global economy today. Not only did the government choose to rescue the financial system— a decision few would question— but it chose to do so by extending a blank check to the largest, most powerful banks in their moment of greatest need. The government chose not to impose conditions that could reform the industry or even to replace the management of large failed banks. It chose to stick with the bankers it had.

In the dark days of late 2008—when Lehman Brothers vanished, Merrill Lynch was acquired, AIG was taken over by the government, Washington Mutual and Wachovia collapsed, Goldman Sachs and Morgan Stanley fled for safety by morphing into “bank holding companies,” and Citigroup and Bank of America teetered on the edge before being bailed out— the conventional wisdom was that the financial crisis spelled the end of an era of excessive risk-taking and fabulous profits. Instead, we can now see that the largest, most powerful banks came out of the crisis even larger and more powerful. When Wall Street was on its knees, Washington came to its rescue— not because of personal favors to a handful of powerful bankers, but because of a belief in a certain kind of financial sector so strong that not even the ugly revelations of the financial crisis could uproot it.

That belief was reinforced by the fact that, when the crisis hit, both the Bush and Obama administrations were largely manned by people who either came from Wall Street or had put in place the policies favored by Wall Street. Because of these long-term relationships between Wall Street and Washington, there was little serious consideration during the crisis of the possibility that a different kind of financial system might be possible— despite the exhortations of prominent economists such as Paul Krugman, Joseph Stiglitz, and many others. There was no serious attempt to break up the big banks or reform financial regulation while it was possible— when the banks were weak, at the height of the crisis. Reform was put off until after the most powerful banks had grown even bigger, returned to profitability, and regained their political clout. This strategy ran counter to the approach the U.S. Treasury Department had honed during emerging market financial crises in the 1990s, when leading officials urged crisis-stricken countries to address structural problems quickly and directly.

As we write this, Congress looks likely to adopt some type of banking reform, but it is unlikely to have much bite. The measures proposed by the Obama administration placed some new constraints on Wall Street, but left intact the preeminence and power of a handful of megabanks; and even these proposals faced opposition from the financial lobby on Capitol Hill. The reform bill will probably bring about some improvements, such as better protection for consumers against abusive practices by financial institutions. But the core problem—massive, powerful banks that are both “too big to fail” and powerful enough to tilt the political landscape in their favor— will remain as Wall Street returns to business as usual.

By all appearances, the major banks— at least the ones that survived intact— were the big winners of the financial crisis. JPMorgan Chase, Bank of America, and Wells Fargo bought up failing rivals to become even bigger. The largest banks increased their market shares in everything from issuing credit cards to issuing new stock for companies. Goldman Sachs reported record profits and, through September 2009, had already set aside over $500,000 per employee for compensation. Lloyd Blankfein, CEO of Goldman Sachs, was named Person of the Year by the Financial Times.

The implications for America and the world are clear. Our big banks have only gotten bigger. In 1983, Citibank, America’s largest bank, had $114 billion in assets, or 3.2 percent of U.S. gross domestic product (GDP, the most common measure of the size of an economy). By 2007, nine financial institutions were bigger relative to the U.S. economy than Citibank had been in 1983.21 At the time of the White House meeting, Bank of America’s assets were 16.4 percent of GDP, followed by JPMorgan Chase at 14.7 percent and Citigroup at 12.9 percent. A vague expectation that the government would bail them out in a crisis has been transformed into a virtual certainty, lowering their funding costs relative to their smaller competitors. The incentive structures created by high leverage (shifting risk from shareholders and employees onto creditors and, ultimately, taxpayers) and huge one-sided bonuses (great in good years and good in bad years) have not changed. The basic, massive subsidy scheme remains unchanged: when times are good, the banks keep the upside as executive and trader compensation; when times are bad and potential crisis looms, the government picks up the bill.

If the basic conditions of the financial system are the same, then the outcome will be the same, even if the details differ. The conditions that created the financial crisis and global recession of 2007–2009 will bring about another crisis, sooner or later. Like the last crisis, the next one will cause millions of people to lose their jobs, houses, or educational opportunities; it will require a large transfer of wealth from taxpayers to the financial sector; and it will increase government debt, requiring higher taxes in the future. The effects of the next meltdown could be milder than the last one; but with a banking system that is even more highly concentrated and that has a rock-solid government guarantee in place, they could also be worse.

The alternative is to reform the financial system now, to put in place a modern analog to the banking regulations of the 1930s that protected the financial system well for over fifty years. A central pillar of this reform must be breaking up the megabanks that dominate our financial system and have the ability to hold our entire economy hostage. This is the challenge that faces the Obama administration today. It is not a question of finance or economics. It is ultimately a question of politics— whether the long march of Wall Street on Washington can be halted and reversed. Given the close financial, personal, and ideological ties between these two centers of power, that will not happen overnight.

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.


From the Hardcover edition.

Revue de presse

“An enticing vision of a Wall Street confined… a safer, saner system that has learned from its mistakes.”
The Wall Street Journal

“A provocative prescription for avoiding a repeat of the panic of 2008 that brought the world to the brink of a second Depression.”
San Francisco Chronicle

“Two of the sharpest critics of the financial establishment. . . . This book puts America’s banking system on trial.”
Financial Times
 
“[13 Bankers] holds an explosive idea: Wall Street has hijacked our government. And without a total overhaul, taxpayers will endlessly foot the bill for its sins.”
Fortune
 
“A well-documented appeal to embrace once again Thomas Jefferson’s skepticism of concentrated banking power.”
The New York Times

“The best explanation yet for how the smart guys on Wall Street led us to the brink of collapse. In the process, Johnson and Kwak demystify our financial system, stripping it down to expose the ruthless power grab that lies at its center.”
—Elizabeth Warren, Professor of Law, Harvard Law School; and Chair, TARP Congressional Oversight Panel
 
“Too many discussions of the Great Recession present it as a purely economic phenomenon. . . . Simon Johnson was the first to point out that this was and is a crisis of political economy. His and James Kwak’s analysis of the unholy inter-twining of Washington and Wall Street—a cross between the gilded age and a banana republic—is essential reading.”
—Niall Ferguson, Professor of History, Harvard University; Professor, Harvard Business School; and author of The Ascent of Money
 
“A disturbing and painstakingly researched account of how the banks wrenched control of government and society out of our hands—and what we can do to seize it back.”
—Bill Moyers
 
“Essential reading for anyone who wants to understand what comes next for the world economy. Dangerous and reckless elements of our financial sector have become too powerful and must be reined in. If this problem is not addressed there is serious trouble in all our futures.”
—Nouriel Roubini, Professor of Economics, Leonard N. Stern School of Business, New York University; and Chairman of Roubini Global Economics
 
“Beautifully written and powerful. Ties the current financial crisis to a cycle of politics as old as the Republic, and to a pathology in our politics that is as profound as any that our Republic has faced. Required reading for the President, and anyone else who cares for this Republic.”
—Lawrence Lessig, Director of the Edmond J. Safra Foundation Center for Ethics, Harvard University
 
“Johnson and Kwak not only tell us in great detail how the crisis happened and what we must do to avoid another crisis, but they see the deeper political and cultural context that permitted carelessness and excess nearly to break the financial system and plunge us into a depression.”
—Bill Bradley, former U.S. Senator
 
“A chilling tale of the dangers of concentrated economic, intellectual, and political power. Even if you do not agree with everything the authors have to say, this book makes it clear why ending ‘too big to fail’ and reforming the institutions that perpetuate it are essential for our nation’s future economic prosperity and, more fundamentally, our democratic system.”
—U.S. Senator Jim Bunning
 
“This book is remarkable in its scope and conclusions. It places changes in financial services and the sector’s regulation over the last twenty years in the context of the last two hundred, and the comparison isn’t favorable. It’s the one book the President (and the Congress) should read.”
—George David, Chairman, United Technologies Corporation
 
“A timely, informative and important book. You may not agree with all the analysis but the issues so clearly discussed are real, current and vitally important. Financial industry reform must be undertaken soon; inaction, as the authors convincingly argue, would have dangerous consequences. This book explains it all and it’s great reading.”
—Lawrence K. Fish, former Chairman and Chief Executive Officer, Citizens Financial Group
 
“As 13 Bankers makes lucidly and compellingly clear, the problem with Wall Street leads directly to the core problem of our democracy. American politics now feeds on money, and Wall Street is where the money is. Unless we separate money from politics, we’ll never be safe from another financial meltdown. In fact, we’ll never really be safe. Read this fine book and get to work.”
—Robert B. Reich, Professor of Public Policy, University of California at Berkeley; Former U.S. Secretary of Labor; and author of Aftershock


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Amazon.com: 4.1 étoiles sur 5  107 commentaires
257 internautes sur 270 ont trouvé ce commentaire utile 
5.0 étoiles sur 5 A radical, but necessary proposal for revamping the banking and financial systems 30 mars 2010
Par Todd Bartholomew - Publié sur Amazon.com
Format:Relié
The desire to analyze the current economic downturn has prompted a deluge of books, most focusing on how to address present and future economic ills and some narrowly focused on individual players and institutions that played a key role in the financial collapse, while others explained the events that led us to this place. "13 Bankers" explains how we got here and more importantly comes up with ideas to prevent a recurrence in the future far more concisely than many others I've read. I could be easy to dismiss Johnson and Kwak's observations as being pessimistic, as makes a very damning indictment of the banking and financial sectors in their past and present conditions and a rather trenchant argument that if these problem are not addressed we likely face another imminent meltdown. The authors give readers a quick concise history of finance and banking in the United States, something that many Americans are woefully unaware of, that points out how banks and financial institutions came to garner so much power over the economy. While efforts have been made to regulate them to varying degrees those regulations have often proven ineffective or are too often enacted AFTER financial catastrophes, much our current situation. The authors rather persuasively argue that the "too big to fail" model and the bailouts of 2008 and 2009 were misguided, arguing that nationalization would have been the better route to go. They continue the argument that the forced mergers, such as Merrill Lynch and Bank of America, were mistakes and instead had created institutions that are now truly to big to fail. In some respects it almost sounds like a Teddy Roosevelt-era trust buster and his argument that these large institutions need to be broken up to diffuse their power certainly makes sense. They also point out the corrosive effect their political clout and donations carry with the political process, hindering further efforts at regulation.

Ultimately "13 Bankers is far more satisfying a read than some recent books on the subject such as The Road from Ruin: How to Revive Capitalism and Put America Back on Top, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, Rediscovering Values: On Wall Street, Main Street, and Your Street, and America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need. Yet the sad truth is that while the authors make a compelling argument for change the political establishment in Washington lacks the political will to break up these excessively large institutions. It wouldn't be good for THEIR business, which is getting reelected. While there are efforts afoot in Washington at reform none are as radical a surgery as proposed here, but suffice to say when the next financial catastrophe comes, and the authors argue it IS coming, there is unlikely to be any taxpayer/voter support for ANY bailout in ANY form. If anything "13 Bankers" made me mad as hell and against any future bailout, let alone continuing the current ones in place. What makes me madder still is that the politicians in both parties will likely never consider the radical proposal put forward here. It's a shame that it will take another financial crisis to get Congress and the Executive Branch to really act responsibly.
115 internautes sur 122 ont trouvé ce commentaire utile 
5.0 étoiles sur 5 Painful History Well Told, and a Bold Prescription for the Future 30 mars 2010
Par Great Faulkner's Ghost - Publié sur Amazon.com
Format:Relié
13 Bankers takes us through he painful history of the financial crisis that brought us where we are today and that now makes it so hard to move forward. Simon and Kwak argue that absent reform, another bailout - a more costly bailout with even greater global consequences, millions of jobs lost, and a ruinous impact on our government budget - is unavoidable.

Many Americans apparently do not yet understand how much influence financial institutions have in Washington, DC. Banks used to answer to Washington and were once held accountable for their actions. That is no longer is the case. We have never had such a concentrated banking system in the United States and it's dangerous that so much of our financial future is wrapped up in the big banks.

But the book is not pessimistic. Simon and Kwak offer instances from our history when elected representatives took on concentrated financial power. Each time, most Americans initially did not grasp how the system works, and this proved a major obstacle to reform. But the political leadership was able to explain what needed to be done, and to persuade average Americans that the nature of power in and around the financial sector had become so great and so distorted that something major had to be done.

The book is not anti-finance, but it is very much against the way our biggest banks operate today. The book describes exactly what needs to be done so that what happened in 2008-09 will never be allowed to happen again. Let's hope the prescription works.
292 internautes sur 325 ont trouvé ce commentaire utile 
3.0 étoiles sur 5 Useful, but not groundbreaking or controversial 13 avril 2010
Par Aaron C. Brown - Publié sur Amazon.com
Format:Relié
I'm jumping in here more to vote among the opinions already expressed than to say anything new. I mostly agree with Bruce Lasker. The book is a good straightforward history of how we got to this point in American banking, but is neither deep in its analysis nor strong in its recommendations. If the reviews had been split on this issue I wouldn't have bothered, but since its 9 to 1 against Mr. Lasker, I think it's worth making it 9 to 2.

The opinion in this book is all expressed through word choice. When the authors don't like an increase in lending it is "an orgy of lending." When they do, "banks responded with capital to support growth." People they disagree with "rant," while people they like "point out" or even "prove." But there's never any analysis to back up these opinions, they're painted onto what is basically a factual history. I happen to agree with more than half of their views, but if I didn't, I wouldn't have been convinced by this book. It doesn't help that everything is based on secondary sources, from which the authors take what they like and nothing else.

On the other hand, if you want a factual history, and either agree with the authors or are willing to ignore loaded words, this is an excellent choice. It's well-written, witty, up-to-the-minute and accurate. The opinions are never intrusive, and never foolish. They feel concentrations of banking power are dangerous, which is pretty reasonable, but they ignore the problems caused by the local corruption that grew up in its place. You learn about Jefferson, Madison and Jackson's principled objection to national banking, you won't learn about politicians anxious to create local bank monopolies for their friends and associates, restraining competition in order to maximize profit and control local economies.

You'll learn how deposit insurance and limits on deposit interest reduced bank failures for 50 years, but not how it destroyed middle class savings when high inflation combined with low legal ceilings on interest; you also won't see the terrible customer service that existed until a "shadow" banking system made an end run around the regulations and offered ATM's, high-interest money market accounts, 24-hour-banking, automated deposits, Internet banking and other innovations (when I started working you got a paper paycheck every two weeks that you had to take to a physical bank on your lunch hour as they were open only 9 to 3 on weekdays and the tellers took the same lunch hour as the office workers so you didn't eat lunch on payday, no food allowed in the bank). Sneaky overcharging and predatory lending loom large in this book, with no hint of the advantage to customers when fixed commissions were smashed or companies were forced to improve accounting disclosure.

Wall Street is always the villain, local banks that lend only to their boards of directors and pals and support the local political machine, are whitewashed. The entire S&L crisis is blamed on Wall Street sharpies taking advantage of sleepy local bankers, you won't hear that virtually the entire loss was from commercial lending by oil-patch banks whose strong political connections ran through Texas, not New York. You'll read how Wall Street money flooded into Washington in campaign contributions and lobbying, you won't read about extortion from politicians introducing legislation to expropriate people's financial businesses unless they paid up. You also won't read about the constant movement of financial innovators to get away from the whole messy business of power politics, organizing off-shore, using private vehicles and leaving regulated businesses to come up with better solutions. It's always politicians trying to draw these into the regulatory framework, where they are forced to render unto Caesar, it's not financial innovators lining up to buy political backing for their ideas. Even the harm done by the gigantic financial institutions built entirely by Washington is blamed on Wall Street, not Washington.

I'm not defending Wall Street here, just pointing out there are two sides to the story. Wall Street, and more generally global financial innovation fighting entrenched local traditional practices, has done both good and bad. Mostly it does things that some people will consider good and others will consider bad. The one point of strong agreement I have with the authors is that a system of crony capitalism grew up, and led to a lot of our current problems. Personally, I would attack all crony capitalism, not just financial, as killing it in one place just tends to encourage it to spring up in another. We have crony defense contractors, medical companies, agribusinesses among many others. I grant that financial cronies are more dangerous than the others (except maybe defense contractors) but they are more alike than different. And the fundamental reform has to be political. If someone is handing out government money, it's pointless to outlaw taking it, because someone will always find a way to break the law, and then repay the giver. Stopping the handout is the point.
59 internautes sur 70 ont trouvé ce commentaire utile 
5.0 étoiles sur 5 A Balanced Look at the Horrors of Wall Street 4 avril 2010
Par C. E. Selby - Publié sur Amazon.com
Format:Relié|Achat vérifié
Simon Johnson is ubiquitous, appearing on a wide range of shows (at least those I watch such as NPR, PBS, and HBO). He is wonderful to listen to, a guy filled with knowledge (as well he should be since he teaches at MIT). And he has a sense of humor. And he is not one with a "conspiracy theory" which apparently one "reviewer" (one-star one) claims. So when I heard about this book, I had to read it.
I grew up in the home of a banker. But Dad was a small-town bank president in what we call "community banks." And the bank still exists and is doing well in Vermont. But my dad, when he retired in the early 70s, said, "Banking isn't banking any more." I had no idea what he was talking about, mainly because I was never much interested in banking. But I have become quite interested in it now that this country has become economically handcuffed by these so-called bankers.
This is a very well written book with a very comprehensive set of notes (footnotes) at the end. In other words, anyone writing comments about these authors being conspiracy theorists is simply ignoring the content of the book. Having said this, however, I want to acknowledge that the book isn't written for people who don't have at least a little knowledge about how the world of finance works. In other words, I found myself lost in many places. But I cannot fault the writers or the writing. I simply don't have what we English teachers would call "prior knowledge," the essential tool to reading.
The authors are not bashing anyone. The book is structured so the reader is provided with some history (and it is sourced history) before being presented with what happened and how it happened. I like how objective Johnson and Kvak are. To use a phrase that I captured from a cable channel I would never watch, this is "fair and balanced."
What most interested this reader is the case the writers make for "The American Oligarchy." Indeed that is what we have with these "financial elites" that run Wall Street. They are so tightly tied into our non-functioning Congress (and to some degree a too-tied-to-Wall-Street White House and to five very-tied-to-Wall-Street on the Supreme Court).
I intend to give this book as a gift to a few people I know who really need accurate information. But do "tea baggers" read I wonder.
15 internautes sur 17 ont trouvé ce commentaire utile 
5.0 étoiles sur 5 Recommendations are the inevitable conclusion 17 avril 2010
Par John Hagens - Publié sur Amazon.com
Format:Format Kindle|Achat vérifié
Johnson and Kwak have written the best book I have read so far on the financial mess. Their historical introduction to the subject includes a description of Thomas Jefferson's concerns about banking. Their conclusion that we need to break up the mega-banks cycles back to Jefferson (and also Andrew Jackson). Some technical knowledge is needed to follow all of the arguments of the book, but the authors take great pains to make this material accessible to anyone who reads a daily paper and is vaguely familiar with mortgage backed securities, collateralized debt obligations, credit default swaps, etc. One walks away from this book upset that the new administration in Washington hasn't taken bolder steps to make finance "boring" once again. I seriously hope that Senator Dodd and Representative Frank carefully read this book, pass it to their Congressional colleagues and staff members, and push hard for serious financial reform. This country cannot afford to experience another meltdown, but as the authors (and many others) point out, this last bailout of the "too big to fails" (also known as "heads they win, tails we lose") only gives the big banks more incentive to gamble even more dangerously. We've now had the tech bubble burst (minor recession) and the housing bubble burst (serious recession). What will be the next sector to blow up?
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