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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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