The Atlantic has a good piece in its current issue called “The Quiet Coup: How bankers took power, and how they’re impeding recovery”, written by a former IMF official named Simon Johnson. He describes the U.S. as potentially an emerging banana republic, saying, “[E]lite 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.”
Johnson lays out how hedge funds and investment banks “were the big beneficiaries of the twin housing and equity-market bubbles of this decade,” and says that the latest bailout plan, “which is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high prices—has been heavily influenced by the financial sector, and Treasury has made no secret of that”:
As Neel Kashkari, a senior Treasury official under both Henry Paulson and Tim Geithner (and a Goldman alum) told Congress in March, “We had received inbound unsolicited proposals from people in the private sector saying, ‘We have capital on the sidelines; we want to go after [distressed bank] assets.’” And the plan lets them do just that: “By marrying government capital—taxpayer capital—with private-sector capital and providing financing, you can enable those investors to then go after those assets at a price that makes sense for the investors and at a price that makes sense for the banks.” Kashkari didn’t mention anything about what makes sense for the third group involved: the taxpayers.
Fixing the economic crisis is complicated by the fact that the “political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.”
It’s a good read from beginning to end, but it’s interesting to note that until not too long ago, such analysis — that political and economic elites wielded state power on behalf of their own privileged interests — would have been dismissed as crude conspiracy-mongering. It’s also worth noting that in many ways, Johnson was scooped about 160 years ago by Marx (who is newly fashionable these days)and Engels in The Communist Manifesto:
The modern bourgeoisie is itself the product of a long course of development, of a series of revolutions in the modes of production and of exchange. Each step in the development of the bourgeoisie was accompanied by a corresponding political advance of that class…The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.”
Not perfect, perhaps, but far more astute than most of the analysis we’ve been getting in the media for the past few years.