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Simon Johnson In The Spotlight

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October 12, 2009

An ever-increasing number of people are paying close attention to a gentleman named Simon Johnson.  Mr. Johnson, a former chief economist at the International Monetary Fund, now works at MIT as Professor of Entrepreneurship at the Sloan School of Management.  His Baseline Scenario website is focused on the financial and economic crises.  At the Washington Post website, he runs a blog with James Kwak called The Hearing.  Last spring, Johnson turned more than a few heads with his article from the May 2009 issue of The Atlantic, “The Quiet Coup”, in which he explained that what happened in America during last year’s financial crisis and what is currently happening with our economic predicament is “shockingly reminiscent” of events experienced during financial crises in emerging market nations (i.e. banana republics and proto-capitalist regimes).

On October 9, Joe Nocera of The New York Times began his column by asking Professor Johnson what he thought the Wall Street banks owed America after receiving trillions of dollars in bailouts.  Johnson’s response turned to Wednesday’s upcoming fight before the House Financial Services Committee concerning the financial reforms proposed by the Obama administration:

“They can’t pay what they owe!” he began angrily.  Then he paused, collected his thoughts and started over:  “Tim Geithner saved them on terms extremely favorable to the banks.  They should support all of his proposed reforms.”

Mr. Johnson continued, “What gets me is that the banks have continued to oppose consumer protection.  How can they be opposed to consumer protection as defined by a man who is the most favorable Treasury Secretary they have had in a generation?  If he has decided that this is what they need, what moral right do they have to oppose it?  It is unconscionable.”

This week’s battle over financial reform has been brewing for quite a while.  Back on May 31, Gretchen Morgenson and Dan Van Natta wrote a piece for The New York Times entitled, “In Crisis, Banks Dig In for Fight Against Rules”:

Hotly contested legislative wars are traditional fare in Washington, of course, and bills are often shaped by the push and pull of lobbyists — representing a cornucopia of special interests — working with politicians and government agencies.

What makes this fight different, say Wall Street critics and legislative leaders, is that financiers are aggressively seeking to fend off regulation of the very products and practices that directly contributed to the worst economic crisis since the Great Depression.  In contrast, after the savings-and-loan debacle of the 1980s, the clout of the financial lobby diminished significantly.

In case you might be looking for a handy scorecard to see which members of Congress are being “lobbied” by the financial industry and to what extent those palms are being greased, The Wall Street Journal was kind enough to provide us with an interactive chart.  Just slide the cursor next to the name of any member of the House Financial Services Committee and you will be able to see how much generosity that member received just during the first quarter of 2009 from an entity to be affected by this legislation.  The bars next to the committee members’ names are color-coded, with different colors used to identify specific sources, whose names are displayed as you pass over that section of the bar.  This thing is a wonderful invention.  I call it “The Graft Graph”.

On October 9, Simon Johnson appeared with Representative Marcy Kaptur (D – Ohio) on the PBS program, Bill Moyers Journal.  At one point during the interview, Professor Johnson expressed grave doubts about our government’s ability to implement financial reform:

And yet, the opportunity for real reform has already passed. And there is not going to be — not only is there not going to be change, but I’ll go further.  I’ll say it’s going to be worse, what comes out of this, in terms of the financial system, its power, and what it can get away with.

*  *   *

BILL MOYERS:  Why have we not had the reform that we all knew was being — was needed and being demanded a year ago?

SIMON JOHNSON:  I think the opportunity — the short term opportunity was missed.  There was an opportunity that the Obama Administration had.  President Obama campaigned on a message of change.  I voted for him.  I supported him.  And I believed in this message.  And I thought that the time for change, for the financial sector, was absolutely upon us.  This was abundantly apparent by the inauguration in January of this year.

SIMON JOHNSON:  And Rahm Emanuel, the President’s Chief of Staff has a saying.  He’s widely known for saying, ‘Never let a good crisis go to waste’.  Well, the crisis is over, Bill.  The crisis in the financial sector, not for people who own homes, but the crisis for the big banks is substantially over.  And it was completely wasted.  The Administration refused to break the power of the big banks, when they had the opportunity, earlier this year.  And the regulatory reforms they are now pursuing will turn out to be, in my opinion, and I do follow this day to day, you know.  These reforms will turn out to be essentially meaningless.

Sound familiar?  If you change the topic to healthcare reform, you end up with the same bottom line:  “These reforms will turn out to be essentially meaningless.”  The inevitable watering down of both legislative efforts can be blamed on weak, compromised leadership.  It’s one thing to make grand promises on the campaign trail — yet quite another to look a lobbyist in the eye and say:  “Thanks, but no thanks.”  Toward the end of the televised interview, Bill Moyers had this exchange with Representative Kaptur:

BILL MOYERS:   How do we get Congress back?  How do we get Congress to do what it’s supposed to do?  Oversight.  Real reform.  Challenge the powers that be.

MARCY KAPTUR:  We have to take the money out.  We have to get rid of the constant fundraising that happens inside the Congress.  Before political parties used to raise money; now individual members are raising money through the DCCC and the RCCC.  It is absolutely corrupt.

As we all know, our system of legalized graft goes beyond the halls of Congress.  During his Presidential campaign, Barack Obama received nearly $995,000 in contributions from the people at Goldman Sachs.  The gang at 85 Broad Street is obviously getting its money’s worth.



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Jackass Of The Year Award

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January 1, 2009

At year’s end, we see retrospectives of the most important events, numerous top ten lists and recognitions of achievement in one area or another.  2008 brought a record level of cynicism to the American people because of the economic catastrophe, the Bernie Madoff scandal and the cartoon-like escapades from the Presidential campaign.  Accordingly, it seems only appropriate to pay homage to the biggest Jackass of the Year.  Since I advertise this website as a “Blago-free zone”, the current Governor of Illinois is automatically disqualified from the competition.  So, let’s take a look at some of the runners-up and finally, the winner of the Jackass of the Year Award.

Our first contestant is John Ensign.  He is chairman of the National Republican Senatorial Committee, representing the State of Nevada in the United States Senate.  On November 2, 2008 he appeared on the CBS television program, Face The Nation with Bob Schieffer.  Election day was two days away and Ensign found it necessary to blame the likely Republican losses on the economic downturn.  He described the Republicans’ fate in these terms:

“And we were starting to do very, very well, but when the financial crisis hit, that financial crisis really is — has been a — almost a body blow to Republicans.  And unfortunately, it was allowed to be portrayed that this was a result of deregulation, when in fact it was a result of overregulation.”

That’s right.  Ensign Douchebag thought he could convince the public that the economic crisis was the result of over-regulation of the financial system, rather than the deregulation described by everyone else in the world.  That noble statement certainly rates runner-up status for the Jackass of the Year Award.

Our next contestant is Reverend Jeremiah Wright, former pastor of Chicago’s Trinity United Church of Christ and embarrassment to Barack Obama.  Thank God Reverend Wright’s fifteen minutes of fame are finally over.  Although his infamous sermon with the less-than-patriotic remarks about America was given in 2003, by April of 2008, Rev. Wright made a point of resurrecting the controversy concerning his disappointing association with Barack Obama.   At that time Wright hit the road, appearing on Bill Moyers Journal, speaking before the NAACP and giving a grand performance before the National Press Club.  He made a fool of himself all three times and (perhaps to his disappointment) his bad karma never rubbed off on Barack.  The pastor has also been a disgrace to the name of the Right Reverend Carl Wright (comedic sidekick of Chicago blues maven, Pervis Spann).  Although Jeremiah Wright rated recognition, the competition for the Jackass Award was tough this year.

We cannot overlook the valiant efforts of Joe “The Tool” Lieberman to win this honor.  Although the people of Connecticut elected Joe to represent their state in the Senate, The Tool spent most of 2008 looking like a stray dog, following candidate John McCain around the campaign trial.  You can find my prior rants about Senator Lieberman here, here, here and here.

We must also give consideration to Christopher Cox, the chairman of the Securities and Exchange Commission.  John McCain was on to him.  It just wasn’t fair that poor, old Senator McCain took so much heat for pointing out that Cox had to go.  McCain made the mistake of stating that he, as President, would have authority to fire Cox.  Although he was wrong about that, he was right about the notion that Cox had been a problem for the SEC.  On December 16, Jessie Westerbrook of Bloomberg news reported that Cox was blaming his subordinates for the enforcement lapses that allowed the scam, perpetrated by Bernie Madoff, to continue for several years after the SEC should have stopped it.  Cox apparently believes in the doctrine that “the buck stops” several levels below himself on the SEC food chain.  The environment at the SEC, with Cox at the helm, was best summed up in a December 27 article from the Los Angeles Times by Amit Paley and David Hilzenrath.  Here’s what they had to say about the tenure of Chairman Cox and his performance during the economic crisis:

Though Cox speaks of staying calm in the face of financial turmoil, lawmakers across the political spectrum counter that this is actually another way of saying that his agency remained passive during the worst global financial crisis in decades.  And they claim that Cox’s stewardship before this year — focusing on deregulation as the agency’s staff shrank — laid the groundwork for the meltdown.

“The commission in recent years has handcuffed the inspection and enforcement division,” said Arthur Levitt, SEC chairman during the Clinton administration.  “The environment was not conducive to proactive enforcement activity.”

*    *    *

But former officials said enforcement suffered during his tenure.  A pilot program begun last year required enforcement staff to meet with the commissioners before beginning settlement talks in certain cases involving nonfinancial firms.  Some former officials said the change was just one example of new bureaucratic impediments that slowed enforcement work.  The commissioners also made clear that they thought staff members were being too aggressive in some cases, the officials said.

”I think there has been a sentiment communicated to rank-and-file staff, lawyers and accountants that you don’t go after the establishment,” said Ross Albert, a former special counsel in the enforcement division.
*    *    *
An analysis by law firm Morgan, Lewis & Bockius showed that the SEC’s actions against broker-dealers, who serve as intermediaries in financial trades, dropped about 33%, from about 89 cases in fiscal 2007 to 60 cases in fiscal 2008.

Heckuva’ job, Coxey!   Nevertheless, you have been overshadowed in this year’s competition.

The winner of the 2008 Jackass of the Year Award is a professor from Russia, named Igor Panarin.  He is a former member of the KGB, who is apparently so upset over the breakup of the Soviet Union, that for the past ten years, he has been predicting that the United States would also break up.  On December 29, Andrew Osborn reported in The Wall Street Journal that Panarin has been doing two interviews per day, discussing how “an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S.”  The article explained:

Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar.  Around the end of June 2010, or early July, he says, the U.S. will break into six pieces — with Alaska reverting to Russian control.

Worse yet, the other five parts of the country will supposedly become republics that will be part of or under the influence of Canada, the European Union, Mexico, China or Japan.  Osborn’s article included a picture of Panarin’s map, showing how the various segments of the country would be apportioned.  Panarin’s ideas have brought him quite a bit of publicity  . . . and TheCenterLane.com’s Jackass of the Year Award for 2008!  Congratulations, Jackass!