The Quiet Coup

[Michael]

The Quiet Coup

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: 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.


Article-TheAtlantic (http://www.theatlantic.com/doc/200905/imf-advice)

Indeed. This is a devastating critique of US politics and US policy. The author of the article asserts that Washington is showing signs of being entirely 'captured' by the financial industry and as such, policies are being made with the interest of the financial industry being considered first and foremost.

As the article notes, this state of affairs is usually only found in 3rd world or developing countries where the ruling elites and financial elites are one and the same.

Question is, what can be done about it? The US is looking like its going to have a decade of stagnant growth coming up...

[Daktoria]

I want to note something that shows how there's more to this article than what appears. From the article itself:...Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.......Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large....
yet:...Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world....

...As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. Works like Barbarians at the Gate (http://www.imdb.com/title/tt0106356/), Wall Street (http://www.imdb.com/title/tt0094291/), and Bonfire of the Vanities (http://www.imdb.com/title/tt0099165/)—all intended as cautionary tales—served only to increase Wall Street’s mystique. Michael Lewis noted in Portfolio (http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom) last year that when he wrote Liar’s Poker (http://www.amazon.com/Liars-Poker-Rising-Through-Wreckage/dp/0140143459), an insider’s account of the financial industry, in 1989, he had hoped the book might provoke outrage at Wall Street’s hubris and excess. Instead, he found himself “knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. … They’d read my book as a how-to manual.” Even Wall Street’s criminals, like Michael Milken and Ivan Boesky, became larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country—and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress....
and:...[Nationalization of] the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5 trillion (or 10 percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole. This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.
By the way, yes, I am all but totally captivated by his reference that follows here to Teddy Roosevelt trust busting since FDR's legacy is a historicist sham that looks good because of the way propaganda reported it and his family name spread it (similarly to Ted Kennedy's exploitation of JFK's reputation today) in the name of supposed national interests.

However, I'm not convinced by his excusing of populism and size-caps since it's the very violation of property rights which allows oligarchs to hold power in the first place. Yes, I'm a fan of Schumpeter because of how much he reflects Machiavelli in how public opinion will sway law and government along a macroscopically inevitable corrupt path (such that the ruler who knows how not to do good will hold the most power as long as he conjures historical legends and national ideologies that mimic religions that sheep need to follow in order to keep feeling safe and remain complacent). This doesn't mean though that change in itself is a good thing. Rather it is a methodical symptom of a competitive environment where majesty is never allowed to brood and ferment due to a pervasive sense of intuitive justice which does not cater to appeals to ignorance and reductio ad absurdum "common sense" (which just happens to be guided by charismatic and narcissistic oligarchs in the first place :lame:).
Anyway, the point I'm making about the bolded sections is that taxpayers, consumers, and workers need to become extensively more educated and activated in investment. The premise of the U.S. being a consumer economy is nonsense since it doesn't take a rocket scientist or master economist to understand that gluttony and debt get you no where especially considering how many McDonalds fatties and credit card pariahs there are in our country. Furthermore, when "the people" insist on taking refuge in immaturity, "hard work ethic", and passing the buck onto the other guy for the sake of sweeping issues under the rug to appear politically correct, "the people" need to realize that "the people" doesn't even exist. Not only is this because of how apparent it is that nothing's getting done except fake, histrionic, coffee klatch giggles which hide behind facades of hierarchy, but also because of how the only way anything IS going to get done is if "the people" balls up and dissolve into the individuals that actually exist. Only then will oligarchs have something to stay on their toes for else they lose their claims to the throne.

[Michael]

Anyway, the point I'm making about the bolded sections is that taxpayers, consumers, and workers need to become extensively more educated and activated in investment. The premise of the U.S. being a consumer economy is nonsense since it doesn't take a rocket scientist or master economist to understand that gluttony and debt get you no where especially considering how many McDonalds fatties and credit card pariahs there are in our country.
Good point. I think the greed of unsophisticated small investors are the 'cash cow' that feeds the financial beast.

Wall Street may be greedy and corrupt - but they are admired and worshipped as the 'holy grail' of wealth creation (which is nothing more than a cultural delusion).

I've said it before and I'll say it again, financial wizardry doesn't actually create anything except a speculative gain against someone else's loss.

And the boom/bust cycle tends to wipe out most speculative gains in the long run.

An economy dependent upon asset flipping in the financial markets may show lots of short term profits, but in the long run, that's an economy that is unsustainable with very little real wealth creation.