It is to easy to demonize without necessarily understanding the full implications of a particular practice. Hence I’m loathe to use the words ‘corrupt’ or ‘corruption’ unless I feel that I truly understand the nature of the corrupt practice. That doesn’t prevent my more strident colleagues which is of course their privilege.
It doesn’t matter how I try and rationalize the thinking behind the current bank bailout, the two C-words keep entering my thinking. Nowhere is this more evident than in the Atlantic’s analysis of the similarities between IMF support for emerging economies and what’s happening in the US.
One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform.
The author says that failure of the kind we are seeing is not only repeated time and again but each time bears the same characteristics:
Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders…They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise…
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them…
And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel…
In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding…
Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system.
[My emphasis added.]
Contrast this with reports from Bloomberg about what Adrienne Gonzalez describes as a ‘group therapy session’ between the banks and Obama:
“Anyone who’s subject to the regulatory scheme that we’ve had up to this point can’t be happy with the state of regulation,” Blankfein of Goldman Sachs said in an interview with Bloomberg Television yesterday. “It is an alphabet soup of agencies.”
Still, bringing back Depression-era regulations, such as the Glass-Steagall Act that separated deposit-taking institutions from investment banks, would be difficult, Blankfein said. “It’s hard to turn back the clock,” he said.
Of course it will be difficult when you’ve got a banking federation that for all intents and purposes is running the show. Given half a chance, they will fight tooth and nail to ensure that any measures are watered down to the point of uselessness. The Atlantic’s cure is simple: nationalize, break up, sell on. In the process the oligarchs have to be broken up as well. Fat chance of that happening when so many government treasury people are Goldman and Merrill alumni. They’re surely not going to stab their former employers in the back? Yet that’s exactly what’s needed. And not just in the banking community.
The fatal flaw in Obama’s strategy, much as has happened in the UK, comes from believing that the banks really do know best, are the prime source of wealth and this is just an aberration. But it isn’t. What’s happening now is a bloodless power struggle between the banks and government that ends up with the man in the street footing the bill. It’s that simple. That’s corrupting of itself. I’d go further by saying that any significant concentration of power in the hands of economic elites is dangerous to the well being of civil society. Arguing that some institutions are too big too fail must surely beg the question: who pays when things go wrong? It surely cannot be right to assume that profits go to investors while losses are met by the rest of us? Yet that’s the corrupting core at the heart of current attempts to solve the crisis.
How long the banks are able to get away with this insane behaviour remains to be seen. Already, the face of protest is being shown as evidenced by this weekend’s march in London. Organizers had hoped for a 10,000 person turn out. In the end 35,000 showed up. That was just a warm up. As the G20 prepare to gather in London:
Chris Knight, the anthropology professor suspended from the University of East London last week for suggesting that bankers might be lynched, was wandering the march alone. “I just met a copper and I said to him, ‘Is this the revolution?’ He said: ‘No, this is the dry run, the revolution starts on Wednesday. Midweek is when we will really start to dance’.”
As professionals, I imagine most of us would prefer to think we stand apart from such things. But what exactly do you say to clients who can’t get credit, are finding that people are taking longer to pay as they hoard cash, fail to renew contracts on the fear that they cannot sustain their businesses? Just what did most ordinary people do to deserve this? Nothing. So why in that case should any of us tolerate the corrupting influence of these shoddy bankers? There is one upside to which we can look forward.
Richard Murphy will be at the G20 conference as a blogger. I am sure he will put the tough questions, at least on the tax angle. It will be interesting to hear the replies.
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