During these times of economic crisis we are afforded a rare opportunity to observe the interplay between the various forces that influence the actions of our country and our money. The major banks of the nation have brought the economy to its knees – to put it in plain terms – and yet they, rather than the government, largely seem to be in charge of how the nation will bail them out, and restore the working of the productive economy.
So who’s really running this country? How can the banks get away with sacrificing our economic recovery in order purely to buy time for themselves? What power are we seeing in play here?
Simon Johnson is an influential commentator on the economic situation, and an economist who used to work for the International Monetary Fund. The IMF specializes in cleaning up when a country – generally small or third-world – experiences a collapse of its economy. Johnson, and his ex-colleagues, recognize the U.S. economic situation as a typical IMF intervention case, with the crucial difference that globally the USA is economically too big to fail, and politically far too big for the IMF to push around.
Otherwise, says Johnson, the IMF would come in, assist the government in seizing the banks, and coordinate recapitalizing and restructuring the financial system. In the process, says Johnson, a lot of the financial elite – the oligarchy, to use the correct term – would be displaced. In the history of interventions, not all oligarchs get swept away, many manage to stay in power. And often of course, those who fall from influence are replaced by other players, the new elite.
Johnson has a new article appearing in the May issue of the Atlantic, detailing why and how we should take this opportunity to break up the current American oligarchy. He foreshadowed this call in an interview with Bill Moyers that aired on PBS February 13th, when he explained the power struggle we’re seeing in the crisis. Both a transcript and a video exist of the interview, and it’s well worth studying.
The politics that we take for granted in the “banana republic” dramas on the world stage seem to be the exact politics we are witnessing in America today. Here we have a new President of great apparent integrity, and unquestioned political skill, forced to deal with an inherited economic crisis, and revealing by his actions the limits of presidential power, and the compromises that must be made, in creating desired outcomes. Obama, as a consummately skilled politician, seems to recognize these ground rules, and is offering us a textbook case study of where the power lies, and how to deal with it.
The recalcitrance of the banks, and their ability to stonewall, can be explained simply by the “debtor’s leverage” they hold over the economy. They want us to buy their toxic assets, but only at a price they like. Otherwise, they simply say no. The government can’t just walk away because it has to restore the economy. James Kwak, a contributor to Simon Johnson’s site Baseline Scenario, illustrated this well, talking about his and Johnson’s early proposal to recapitalize the banks, and their “overestimation” of the government’s power to force a solution.[4]
The politics of money and government, however, run deeper than simple debtor’s leverage. Insider influence and cozy relationships have their rewards. The New York Times, in an Op-Ed piece written by Fortune contributing editor William D. Cohan on April 14th, told of the currently rising fortunes of Goldman Sachs, amidst the disarray of its competitors, in a story that Simon Johnson would recognize instantly as the infighting happening before our eyes within the oligarchy.
