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Thirteen Bankers: The Wall Street Takeover and the Next Financial Meltdown
The authors begin their book with two quotations that implicitly raise the question of why we are suffering recurrent, intensifying crises. You have to love a book that begins with an excerpt from Fitzgerald’s The Great Gatsby.
They were careless people, Tom and Daisy – they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.
The first chapter begins with a quotation from President Obama’s remarks to the thirteen bankers on March 27, 2009 at a meeting to seek their support for his recovery plans.
My administration is the only thing between you and the pitchforks.
The authors note that President Obama then made the plea: “Help me help you.” [In a Freudian keyboard slip, I originally typed “Help us help you.” But Obama personalized his plea.] President Obama came into office emphasizing his intent to look forward, not backward. The authors show us the high cost of this failure to even understand the concept of accountability. Accountability is essential to a just world. The authors also show it is essential to an honest and competent financial sector that does not careen from crisis to crisis.
President Obama instinctively sees holding elites accountable to be a vile thing that calls forth our lesser angels. Those who believe in justice are dangerous populists. They are mobs wielding “pitchforks.” The proper role of the President is to protect “Tom and Daisy” from justice. He will “clean up the mess they had made” of the economy (with our money). The citizens’ function is to “help” the thirteen bankers. The authors rightly emphasize that the most fundamental way in which big finance dominates both political parties is not through their massive political contributions, but through the triumph of the industry’s ideology. The standard Reagan jest about government applies far better to the big banks: “I’m from Goldman Sachs, and I’m here to help you.” But that is not how the political elites frame the issue. They accept the big finance’s ideological trinity: (1) massive financial firms are essential to fund the real economy, (2) “financial innovation” brings efficiency and growth while excluding fraud, and (3) financial regulation cannot succeed, but can make things far worse.
Tom Frank (who has a doctorate in history), has tried to correct many of these fictions about populism in his books (What’s the Matter with Kansas and The Wrecking Crew). People hate elites that abuse their power to enrich themselves through fraud and crony capitalism. They particularly hate it when the elites do so with impunity. Effective Presidents throughout our history have channeled this outrage and demand for justice (accountability) to create the political space that led to passage of many progressive measures that are so much a part of our world today that we no longer even recall that their opponents once claimed they were the vanguard of Marxism.
The authors show how President Obama squandered his opportunity to create the political space for reform when he embraced big finance and sought to protect its leaders from justice. They also demonstrate that this is not a new phenomenon. Rubin led President Clinton’s administration down this same rabbit hole. His protégés, particularly Larry Summers, are President Obama’s principal economic advisors.
And so, despite what the FBI has rightly called an “epidemic” of mortgage fraud, with 80% of the losses arising when industry insiders are involved in the losses, not a single senior officer of a major nonprime lender has been arrested (much less convicted) of mortgage fraud or securities fraud. Despite bailing out with federal funds every major bank, the regulators did not insist that any of the CEOs lose their jobs or return the massive bonuses they obtained via false accounting. Indeed, the administration stood by silently while, with Ben Bernanke’s encouragement, the Chamber of Commerce and the banking lobbyists induced Kanjorski to extort the Financial Accounting Standards Board (FASB) to (successfully) intimidate it into dropping honest accounting rules so that the banks could avoid recognizing their losses. Absent this dishonest accounting the banks could not have paid most of the massive bonuses because the banks would have been reporting losses instead of profits and many would be reporting that they were insolvent.
The regulators have even failed to bring civil suits and administrative actions for restitution against the officers of the massive banks that drove the financial crisis. No prominent banker complicit in the nonprime scandals has even been “removed and prohibited” from the industry.
The authors make the essential point. If you don’t hold the bankers accountable even when they blow up the world economy, but instead reward them for doing so, you create a situation in which the two most relevant questions are: (1) when will the next global crisis strike and (2) how horrific will it be?
The authors show how dangerous the financial oligarchy is to democracy and to the global economy. Their answer is the one that I think is the only workable answer – no bank should be allowed to become (or remain) a systemically dangerous institution (SDI). They end, as they began, with the effort by the Rubin wing of the Democratic Party to label and dismiss any position in favor of effective reform as naïve and “pitchforky.” The authors’ proposed reform is the product of sound analytics and common sense. The Rubin wing of the party is the land of the economists that claimed that big finance was benign, self-regulating, and immune from fraud. That’s naïve with a capital “N.” They are even proud of not holding the financial oligarchs (who make them rich and powerful) accountable. They think the American peoples’ desire for justice is naïve and dangerous and that their function is to protect the oligarchs from the people. This makes them not simply naïve but enablers of elite criminality and enemies of democracy.