In last month’s Atlantic Monthly there was an article by Simon Johnson entitled The Quiet Coup. What I found especially intriguing about this article is the strong case that Johnson, a former chief economist at the International Monetary Fund, makes in comparing the US, with our recent economic difficulties, to emerging economies. Johnson should know what an emerging economy looks like, in his job at the IMF he was continuously being asked to bail out the likes of South Korea, Malaysia, Russia, and Argentina from frighteningly similar circumstances.
The most troubling aspect is the intertwined involvement of the financial giants with our government. As Johnson relates, this could be equated to the organized crime syndicates or drug kingpins of a third world country having the politicians in their breast pocket. Wall Street has developed into a breeding ground for politicos, and much of the bailout activity has reflected that, given the friendly terms being received by the huge banks and insurance companies.
Johnson argues that the only effective way to deal with the situation is exactly the same way the IMF has dealt with the same thing time after time: nationalize the troubled banks and break them up as necessary. Unfortunately, it looks like we’ll continue on the present track of pussy-footing around with the banks, offering bailouts, watering down regulation updates, and generally not admitting to the scope of the problem.
And that’s just the first step – the second is to subvert the present influence that these financial giants have over public policy. The root of the problem is that these institutions have been allowed to become “too big to fail” – we need to build into our regulatory system methods to keep the size issue from becoming a global economic threat.
Very interesting and sobering read, indeed. What do you think?
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I can learn from you, you can learn from me - please leave your comments and links!Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 25 years of experience in the industry. Read more from this author
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