I'll excerpt part of Bill Moyer's intro to introduce this piece:
"There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that — they say — will deliver you back to growth. The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?"
And here's the man who asked that question. Simon Johnson is former chief economist at the International Monetary Fund. He now teaches global economics and management at MIT's Sloan School of Management and is a senior fellow of the Peterson Institute. He is co-founder of that website I quoted — baselinescenario.com — where he analyzes the global economic and financial crisis.
Watch the video interview here.
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That was an excellent interview, wasn't it? And Simon Johnson, of course, has been a regular consultant to Planet Money. But I disagree with his statement that our anti-trust laws are a hundred years old. Our bank anti-trust laws (or lack thereof) are only about 15 years old, or when did they repeal Glass-Steagall, anyway? We never had these problems with banks as long as the New Deal banking regulations were in place; and I was working for the Bank of America through the deregulation (since 1988), I saw it happen.
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ReplyDeleteYes, an exceptional interview.
ReplyDeletemmmm....there is a great article on the progression of "innovation" leading to securitization I read. But securitization isn't really the cause of our situation of course.
I think the most decisive error was setting up the ratings companies (Moodys, et al) to be paid entirely by the sellers of securities. Thus they had motivation to ignore their own good sense.
And then Wall Street actually gambled its very credibility on the process, and lost. So the other crucial piece was that stockholders allowed the ludicrous divorce of bonuses from actual longer-term results, setting up incentives for short-term greed. This allowed Wall Street CEOs to play for short-term profits and take big risks.
The combination of these two helped lead to this result.