BOOK REVIEW 13 Bankers
(Submitted 12/27/10)
Published: 12/30/10 Livingston County News. Midwest Book Review Feb. 2011.
13 Bankers,
The Wall Street Takeover and the Next Financial Meltdown
By Simon Johnson & James Kwak
Pantheon Books, Div. Random House,2010
www.pantheonbooks.com
ISBN 978-0-307-37905-4
Hardcover $10.44, Paper $10.76, Kindle $8.77
America is not a democracy? America is not a democratic republic?
America is an oligarchy? One wonders after reading this book. The authors write “We may have the most advanced political system in the world, but we also have its most advanced oligarchy.” This book is a startling revelation of the power of the large banks in America. An oligarchy is defined as a form of government in which the power is vested in a few, or in a dominant class or clique. It appears that the large American banks have been powerfully influencing Washington for several decades, and culminated in the 1990’s when “Wall Street translated its growing economic power into political power” that gave Wall Street “on issue after issue what they wanted.”
The authors further claim that the result of the Glass–Steagall Banking Act of 1933 that separated commercial banks from investment banks and brokerages was the “safest banking system America had known in its history and booms and busts were prevented.” Repealing Glass-Steagall was at the top of the commercial banks’ wish list, and it was repealed in 1999. Since the 1970’s, the banks have exerted power over various government agencies with the approval of Congress. The savings and loan crisis, the Long Term Capital Management (LTCM) fiasco, Enron, WorldCom, et al, didn’t teach lessons needed, and Johnson and Kwak say, “the conditions that created the financial crisis and global recession of 2007-09 will bring about another crisis, sooner or later.” The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009 attempts to prevent another 2007-2009 financial crisis, and its regulations are currently being formulated. Its summary is 43 pp. long and the entire bill is 2319 pp. according to Time Magazine(7/12/10). One hopes it’s not closing the barn door after the horse is out, nor that it was written blindly with Wall Street’s lobbying help, nor that our representatives didn’t really read it, nor that it does not conflict with the Financial Crisis Inquiry Commission’s Report (FCIC) of the causes of the financial crisis, which is due January 2011.
One of the Dodd-Frank provisions, detailed in the 12/21/10 Wall Street Journal, “prohibits any bonus plan that encourages inappropriate risks at financial firms with more than $1 billion in assets.” This presumably addresses Main Street’s and the tea partiers’ abhorrence of the enormous bonuses on Wall Street. Another provision now requires that over the counter derivatives receive the scrutiny that the former chair of the CFTC (Commodity Futures Trading Commission), Brooksley Born,
warned about way back in 1998, but was rebuffed by Alan Greenspan, Lawrence Summers, Robert Rubin and others. In fact, a “group of thirty,” an international advocacy group composed of private sector bankers, central bankers, and sympathetic academics, lobbied against such regulation and Congress caved in late 1999 and those derivatives were exempted from federal legislation in the Commodity Futures Modernization Act passed by a lame duck Congress and lame duck President in a appropriations act for fiscal year 2001.
The oligarchy of 13 banks is American Express, Bank of America, Bank of New York Mellon, Citigroup, Freddie Mac, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Northern Trust, PNC, State Street, US Bank, and Wells Fargo. The 6 largest banks now are Goldman Sachs, Citigroup, Bank of America, JPMorgan Chase, Morgan Stanley, and Wells Fargo, and they have been busy lobbying for what they want, so the oligarchy appears to be intact. According to the same Time article, more than 2000 lobbyists were “working on financial reform” and “43 members of the Congressional financial-reform conference had received $112 million from donors associated with the finance, insurance, and real estate industries.” In addition to lobbying, there is a cultural revolving door that has Wall Street operatives and government regulators going to and from the two sectors. If the Dodd-Frank bill addresses this, perhaps the authors will be wrong in saying, “By leaving banks in the hands of existing managers and going out of its way to minimize its own influence, government (is) ensuring that it (has) no way to encourage banks to do anything other than hoard the cash and in no way to affect banks’ behavior in the future.” There are reports about the hoarding of cash being one of the impediments to improving our economy, so is government helping the situation or inadvertently contributing to the continued economic malaise?
In legislation after legislation, Congress seems to have deferred to Wall Street’s so-called “expertise.” Will the authors be accurate in saying “…the conditions that created the financial crisis and global recession of 2007-09 will bring about another crisis, sooner or later?”
Their recommendations include trust-busting to break up these Too Big To Fail entities. This leads one to wonder how the many mergers and acquisitions of smaller banks by larger banks have been approved as not violating the Sherman Anti-Trust Act. Many smaller banks have disappeared. It is one thing for the FDIC to take over struggling or insolvent banks to protect consumers, but that seems different from the large banks taking over the smaller banks, even with shareholder approvals. How does the Sherman Anti-Trust Act protect us and preserve competition? Are we destined for another crisis, as the writers say?
Johnson, now a professor at MIT, was formerly a top economist at the International Monetary Fund, and Kwak, a Harvard graduate with his Ph.D. from UCBerkeley, authored The Baseline Scenario, a commentary on the global financial crisis, mostly focused on the situation in the USA. Readers wondering if the U. S. economy is out of the woods will find the writing concise, yet detailed enough to ask if Robert B. Reich is right in saying on the book jacket, "Unless we separate money from politics, we'll never be safe from another financial meltdown....Read this fine book and get to work." The book contains extensive notes and recommended further readings.
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Tuesday, December 28, 2010
Friday, June 18, 2010
BOOK REVIEW. Submitted 6-15-10
Too Big to Fail
By Andrew Ross Sorkin (Viking Press, 2009)
In March 2007 testimony before Congress’ Joint Economic Committee, Federal Reserve Chairman Ben Bernanke said, “The impact on the broader economy and the financial markets of the problems in the subprime markets seem likely to be contained.”
In early 2008 he also said, “We’ve learned so much from the Great Depression and Japan, that we won’t have…” another Great Depression or a lost decade like Japan’s.
At a September 2008 meeting of congressional leadership including Speaker of the House Pelosi, Treasury Secretary Paulson, and SEC Chairman Cox to explain Paulson’s TARP proposal, Bernanke then said, “I spent my career as an academic studying great depressions. I can tell you from history that if we don’t act in a big way, you can expect another great depression, and this time it is going to be far, far worse.”
Andrew Ross Sorkin’s book Too Big To Fail chronicles inconsistencies, contradictions, and machinations of Bernanke, Henry Paulson, Tim Geithner, and various CEOs and says they fed the market confusion of 2008. Sorkin also states that the financial cycle that our economy has experienced will only repeat itself when the next inevitable bubble bursts. Without “regulations…changed radically to include such measures as strict limits on leverage at large financial institutions, curbs on pay structures that encourage irresponsible risks, and a crackdown on rumormongerers and the manipulation of stock and derivative markets, there will continue to be firms that are too big to fail.”
Sorkins’s subtitle, “The inside story of how Wall Street and Washington fought to save the financial system—and themselves,” is a revealing tale of dealmaking among and between many operatives to save the financial system, their individual firms, and themselves. Bear Stearns, Lehman Bros., Fannie Mae and Freddie Mac, Washington Mutual bank, AIG, Wachovia bank, Morgan Stanley, Goldman Sachs, J. P. Morgan Chase, Citigroup, Bank of America, Wells Fargo, foreigners, the FDIC, the Treasury, the Federal Reserve, the SEC and other regulators are some of the protagonists in this sad story that led to the “…largest one time expenditure in the history of the federal government.” In fairness, Sorkin describes warnings, some as early as 1994, by Paulson, Geithner, and others, but that no one was listening. The financial reform proposal now before Congress includes a process for government to wind down a large financial institution; maybe that will address those “too big to fail.”
E-mail conradjoanne@yahoo.com -30-
By Andrew Ross Sorkin (Viking Press, 2009)
In March 2007 testimony before Congress’ Joint Economic Committee, Federal Reserve Chairman Ben Bernanke said, “The impact on the broader economy and the financial markets of the problems in the subprime markets seem likely to be contained.”
In early 2008 he also said, “We’ve learned so much from the Great Depression and Japan, that we won’t have…” another Great Depression or a lost decade like Japan’s.
At a September 2008 meeting of congressional leadership including Speaker of the House Pelosi, Treasury Secretary Paulson, and SEC Chairman Cox to explain Paulson’s TARP proposal, Bernanke then said, “I spent my career as an academic studying great depressions. I can tell you from history that if we don’t act in a big way, you can expect another great depression, and this time it is going to be far, far worse.”
Andrew Ross Sorkin’s book Too Big To Fail chronicles inconsistencies, contradictions, and machinations of Bernanke, Henry Paulson, Tim Geithner, and various CEOs and says they fed the market confusion of 2008. Sorkin also states that the financial cycle that our economy has experienced will only repeat itself when the next inevitable bubble bursts. Without “regulations…changed radically to include such measures as strict limits on leverage at large financial institutions, curbs on pay structures that encourage irresponsible risks, and a crackdown on rumormongerers and the manipulation of stock and derivative markets, there will continue to be firms that are too big to fail.”
Sorkins’s subtitle, “The inside story of how Wall Street and Washington fought to save the financial system—and themselves,” is a revealing tale of dealmaking among and between many operatives to save the financial system, their individual firms, and themselves. Bear Stearns, Lehman Bros., Fannie Mae and Freddie Mac, Washington Mutual bank, AIG, Wachovia bank, Morgan Stanley, Goldman Sachs, J. P. Morgan Chase, Citigroup, Bank of America, Wells Fargo, foreigners, the FDIC, the Treasury, the Federal Reserve, the SEC and other regulators are some of the protagonists in this sad story that led to the “…largest one time expenditure in the history of the federal government.” In fairness, Sorkin describes warnings, some as early as 1994, by Paulson, Geithner, and others, but that no one was listening. The financial reform proposal now before Congress includes a process for government to wind down a large financial institution; maybe that will address those “too big to fail.”
E-mail conradjoanne@yahoo.com -30-
Monday, January 25, 2010
BOOK REVIEW by Joanne Conrad: Spin-Free Economics by Nariman Behravesh
Spin-Free Economics
by
Nariman Behravesh
Published 1/21/10
Stealing from the public? Immigration doesn’t hurt American workers? Technology and globalization don’t hurt American workers? Foreign aid is not helpful? Public education and health care don’t work? Pollution is not so bad?
Economist Nariman Behravesh writes at length about these issues in Spin-Free Economics, a No-Nonsense, Non-Partisan Guide to Today’s Global Economic Debates, published 2009 by McGraw Hill.
His eleven chapters are Lessons from History, Markets Know Best, There is a Price for Everything, Competition is Consumers’ Best Friend, Growth is Good, Globalization More Like Love than War, Good Government/Bad Government, Poverty/Inequality/Job Security, The Search for Stability, Financial Markets and the Economy, and Nine Economic Lessons for a Polarized World.
He suggests stealing from the public is evident in many areas, such as corporate welfare, education, jobs, immigration, globalization, foreign aid, and even pollution. “Government interference in markets, for example, creates a fertile environment for special interests to gain at the expense of consumers” with “subsidies, tax breaks, and protectionism.”
In education, the lack of competition, union influences, and spending “40% higher than other rich countries” do not benefit students’ performances—that charter schools and other private schools and more competition “would produce better results at a lower cost.” He cites a Department of Education study that says charter schools have higher percentages of minority students and do not hurt the poor.
He says health care would also “benefit from more competition” and that health care is now a “market failure.” His solution would have both public and private sectors involved and not “confuse universal coverage with a comprehensive solution.” His bottom line states: “American health care spending will continue to rise, but has been growing at a slower pace than in many other rich countries, and the public burden is less.” His solutions include removing tax distortions, increasing portability, providing incentives to economize, creating risk pooling, providing more information for cost-effective choices, diminishing market power of insurers and providers, reducing scope of malpractice, and having incentives for healthier lifestyles.
About jobs, immigration, globalization, and income inequality, he stresses re-training for unemployed and that technology, not immigration nor globalization, is the number one culprit for job losses and income inequality. He acknowledges that the rich have become richer, but the poor have also become richer, albeit at a slower rate. He thinks globalization is a convenient scapegoat and not entirely blameless but that only 5 to 10% of American workers have been affected by globalization. He further writes that diminished unions are not causes as they were weak before income inequality increased, that Germany lost union share with no effect on income inequality, that higher wages have contributed to declining employment in airline, automobile, and steel industries, and in recent years union membership has been falling at a slower pace. He states wage controls, rent controls, etc., have unintended consequences, too, and do not really help the poor.
Foreign aid is also considered counterproductive and that countries that have embraced globalization and open trade have grown much faster and helped the world’s poor improve their standards of living. Countries with political instability constrain their productivity. He says the culture of kleptocracy is extremely constraining Africa’s growth.
Pollution and climate change are also discussed with statistics that in richer countries whose per capita incomes rise to between $5000 and $8000, the pollution levels off and begins to fall. He feels human ingenuity, adaptability, and flexibility will provide solutions and that “scare scenarios about global warming and associated draconian policy prescriptions run a very high risk of the cure being worse than the disease.”
His “Nine Economic Lessons for a Polarized World” stress “Free markets are a force for good and have had a superb track record in unleashing human ingenuity… for productive use.” They are: “Embrace and trust markets, Remove distortions to economic incentives, Reduce concentration of economic and market power and the potential for theft from the public, Adopt growth-friendly policies, Accelerate economic integration with the rest of the world, Focus government programs on areas where they can be most beneficial and assist free-market forces without interfering with them, Help the disadvantaged without hurting the rest, Develop macroeconomic policies that reduce economic uncertainty and volatility, and Encourage and develop innovative financial markets that help growth while reducing risks of boom-bust cycles.” In most all economic endeavors, he feels market-based solutions are much superior to “command and control” legislation and cites those who advocate, use, or have used command and control as failures.
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by
Nariman Behravesh
Published 1/21/10
Stealing from the public? Immigration doesn’t hurt American workers? Technology and globalization don’t hurt American workers? Foreign aid is not helpful? Public education and health care don’t work? Pollution is not so bad?
Economist Nariman Behravesh writes at length about these issues in Spin-Free Economics, a No-Nonsense, Non-Partisan Guide to Today’s Global Economic Debates, published 2009 by McGraw Hill.
His eleven chapters are Lessons from History, Markets Know Best, There is a Price for Everything, Competition is Consumers’ Best Friend, Growth is Good, Globalization More Like Love than War, Good Government/Bad Government, Poverty/Inequality/Job Security, The Search for Stability, Financial Markets and the Economy, and Nine Economic Lessons for a Polarized World.
He suggests stealing from the public is evident in many areas, such as corporate welfare, education, jobs, immigration, globalization, foreign aid, and even pollution. “Government interference in markets, for example, creates a fertile environment for special interests to gain at the expense of consumers” with “subsidies, tax breaks, and protectionism.”
In education, the lack of competition, union influences, and spending “40% higher than other rich countries” do not benefit students’ performances—that charter schools and other private schools and more competition “would produce better results at a lower cost.” He cites a Department of Education study that says charter schools have higher percentages of minority students and do not hurt the poor.
He says health care would also “benefit from more competition” and that health care is now a “market failure.” His solution would have both public and private sectors involved and not “confuse universal coverage with a comprehensive solution.” His bottom line states: “American health care spending will continue to rise, but has been growing at a slower pace than in many other rich countries, and the public burden is less.” His solutions include removing tax distortions, increasing portability, providing incentives to economize, creating risk pooling, providing more information for cost-effective choices, diminishing market power of insurers and providers, reducing scope of malpractice, and having incentives for healthier lifestyles.
About jobs, immigration, globalization, and income inequality, he stresses re-training for unemployed and that technology, not immigration nor globalization, is the number one culprit for job losses and income inequality. He acknowledges that the rich have become richer, but the poor have also become richer, albeit at a slower rate. He thinks globalization is a convenient scapegoat and not entirely blameless but that only 5 to 10% of American workers have been affected by globalization. He further writes that diminished unions are not causes as they were weak before income inequality increased, that Germany lost union share with no effect on income inequality, that higher wages have contributed to declining employment in airline, automobile, and steel industries, and in recent years union membership has been falling at a slower pace. He states wage controls, rent controls, etc., have unintended consequences, too, and do not really help the poor.
Foreign aid is also considered counterproductive and that countries that have embraced globalization and open trade have grown much faster and helped the world’s poor improve their standards of living. Countries with political instability constrain their productivity. He says the culture of kleptocracy is extremely constraining Africa’s growth.
Pollution and climate change are also discussed with statistics that in richer countries whose per capita incomes rise to between $5000 and $8000, the pollution levels off and begins to fall. He feels human ingenuity, adaptability, and flexibility will provide solutions and that “scare scenarios about global warming and associated draconian policy prescriptions run a very high risk of the cure being worse than the disease.”
His “Nine Economic Lessons for a Polarized World” stress “Free markets are a force for good and have had a superb track record in unleashing human ingenuity… for productive use.” They are: “Embrace and trust markets, Remove distortions to economic incentives, Reduce concentration of economic and market power and the potential for theft from the public, Adopt growth-friendly policies, Accelerate economic integration with the rest of the world, Focus government programs on areas where they can be most beneficial and assist free-market forces without interfering with them, Help the disadvantaged without hurting the rest, Develop macroeconomic policies that reduce economic uncertainty and volatility, and Encourage and develop innovative financial markets that help growth while reducing risks of boom-bust cycles.” In most all economic endeavors, he feels market-based solutions are much superior to “command and control” legislation and cites those who advocate, use, or have used command and control as failures.
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