'The Perfect Crime'

There is growing evidence that fraud was at the heart of the current financial crisis. But so far, no high-level bank executives have been hauled off to jail. One of the reasons may be that key bank regulators, who are counted on to root out fraud from the companies they regulate, have largely left it to the banks to report suspicious activity themselves. In this story one veteran bank regulator and a fed-up Senator try to answer the question many have pondered since the beginning of the crisis: why haven't more bank bosses been held responsible for this mess?

Too Big to Jail? | The Huffington Post Investigative Fund

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

[from MIT Sloan School of Management Newsroom]

Channeling Thomas Jefferson and Theodore Roosevelt, MIT Sloan School of Management Professor
Simon Johnson warns in a new book that a “new financial oligarchy” threatens not only the nation’s economy, but its political core. In 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, Johnson, says the book provides “the back story” for the 2008 financial crisis “and for all the issues being raised now around financial reform. We hope the book helps people have a badly needed conversation about what we must do to push back against dangerous, narrow interest groups that now threaten our economic well-being.”

In 13 Bankers, Johnson, a former chief economist for the International Monetary Fund, and co-author
James Kwak cite historical precedents and offer financial analysis to conclude that a second financial shock is inevitable unless the financial and political stranglehold held on Washington by the nation’s biggest banks is broken. “The best defense against a massive financial crisis is a popular consensus that too big to fail is too big to exist,” the authors write. “This is at its heart a question of politics, not of economics or of regulatory technicalities.”

The book points out that the current concentration of financial and political power is not unlike other moments in American history. President Theodore Roosevelt, for example, challenged the monopoly powers of banker and industrialist J.P. Morgan. “No one thought he could win,” Johnson says in an interview, “but he did succeed in the first prosecution of a corporation under the Sherman Antitrust Act.” Roosevelt, he said, began a process that helped people understand the need to rein in the power of corporate giants, such as John D. Rockefeller’s Standard Oil, “which was arguably more important as a single company in 1910 than J.P. Morgan was then or J.P. Morgan Chase is now,” says Johnson.

Similar leadership is needed from the Obama administration and Congress now, according to 13 Bankers, which concludes that regulatory changes and other responses to date have been vastly inadequate. Johnson supports the administration’s proposed consumer protection measures, but overall, “You can’t just tweak a few rules and expect to rein in these big institutions.” Instead, the book calls for the six biggest banks to be broken up and for hard limits to be imposed so that banks cannot rebuild themselves into political and financial powerhouses. “Saying that we cannot break up our largest banks is saying that our economic futures depend on these six companies,” notes Johnson. “That thought should frighten us into action.”

13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

Written by Simon Johnson and James Kwak

Even after the ruinous financial crisis of 2008, America is still beset by the depredations of an oligarchy that is now bigger, more profitable, and more resistant to regulation than ever. Anchored by six megabanks—Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—which together control assets amounting, astonishingly, to more than 60 percent of the country’s gross domestic product, these financial institutions (now more emphatically “too big to fail”) continue to hold the global economy hostage, threatening yet another financial meltdown with their excessive risk-taking and toxic “business as usual” practices. How did this come to be—and what is to be done? These are the central concerns of 13 Bankers, a brilliant, historically informed account of our troubled political economy.

In 13 Bankers, Simon Johnson—one of the most prominent and frequently cited economists in America (former chief economist of the International Monetary Fund, Professor of Entrepreneurship at MIT, and author of the controversial “The Quiet Coup” in The Atlantic)—and James Kwak give a wide-ranging, meticulous, and bracing account of recent U.S. financial history within the context of previous showdowns between American democracy and Big Finance: from Thomas Jefferson to Andrew Jackson, from Theodore Roosevelt to Franklin Delano Roosevelt. They convincingly show why our future is imperiled by the ideology of finance (finance is good, unregulated finance is better, unfettered finance run amok is best) and by Wall Street’s political control of government policy pertaining to it.

As the authors insist, the choice that America faces is stark: whether Washington will accede to the vested interests of an unbridled financial sector that runs up profits in good years and dumps its losses on taxpayers in lean years, or reform through stringent regulation the banking system as first and foremost an engine of economic growth. To restore health and balance to our economy, Johnson and Kwak make a radical yet feasible and focused proposal: reconfigure the megabanks to be “small enough to fail.”

Lucid, authoritative, crucial for its timeliness, 13 Bankers is certain to be one of the most discussed and debated books of 2010.

Will Proposed Financial Regulatory Overhaul Actually Reform Wall Street?

With the main healthcare reform bill signed into law, Democrats say congressional efforts to reform Wall Street and the nation’s financial regulatory system will soon top the Obama administration’s agenda. A measure put forward by Sen. Christopher Dodd is being described as the biggest overhaul of financial rules since the 1930s, but critics have faulted the proposal for giving additional power to the Federal Reserve while gutting the proposed Consumer Financial Protection Agency and housing it inside the Fed.

Nomi Prins: “Obama Banking Too Much on Banks”

President Obama visited Wall Street Monday to promote a regulatory overhaul of the US financial system. The visit came on the one-year anniversary of the collapse of the investment bank Lehman Brothers. Lehman’s bankruptcy set off a series of events across the financial markets, leading to a full-scale economic meltdown. Speaking at Federal Hall, Obama promoted Democratic proposals for new financial oversight and a consumer protection agency to protect Americans from unfair loans, but Nomi Prins, an investment banker turned journalist, says Obama’s proposed reforms don’t go deep enough.

Energy Market Manipulation

Energy Market Manipulation (part 2)

A hearing was held on energy market manipulation and federal enforcement regimes. Topic included the current state of the oil and gas markets and their impact on consumers, as well as key factors the Federal Trade Commission should incorporate into its upcoming rulemaking on its new responsibility to prevent manipulation in the wholesale oil and petroleum distillate markets. Read More
Energy Market Manipulation - C-SPAN Video Library

As Foreclosures Hit All-Time High, Wall Street on Pace to Hand Out Record $140B in Employee Bonuses

The Dow Jones Industrial Average has topped 10,000 for the first time in a year, as JPMorgan Chase reported massive profits in the third quarter. Meanwhile, the Wall Street Journal is reporting that major US banks and securities firms are on pace to pay their employees about $140 billion this year—a record high. But on Main Street, foreclosures are also at record levels, and the official unemployment rate is expected to top ten percent. We speak to former bank regulator William Black, author of The Best Way to Rob a Bank Is to Own One.

Bill Moyers Journal . Simon Johnson on Banking Oligarchy

On Tuesday, February 10, 2009 Treasury Secretary Timothy Geithner unveiled the Obama administration's plan to address the crisis in the financial sector. The strategy he outlined calls for the largest Federal intervention in banks and finance since the Great Depression, flooding as much as $2.5 trillion into the system. Given its size and scope — the bill's lack of detail drew a widely negative response from analysts and economists.

Although he thinks the details are important, Simon Johnson, Professor of Economics at MIT, worries more that Geithner and the Obama administration won't address a big underlying problem and be tough enough on the politically powerful banking lobby.

Too Big To Fail?

Johnson explains to Bill Moyers on the JOURNAL that the U.S. financial system reminds him more of the embattled emerging markets he encountered in his time with the International Monetary Fund than that of a developed nation. As such, Johnson believes that the U.S. financial system needs a "reboot," breaking up the biggest banks, in some cases firing management and wiping out shareholder value. Johnson tells Bill Moyers that such a move wouldn't be popular with the powerful banking lobby: "I think it's quite straightforward, in technical or economic terms. At the same time I recognize it's very hard politically."

Without drastic action, Johnson argues, taxpayers are merely subsidizing a wealthy powerful industry without forcing necessary systemic changes: "Taxpayer money is ensuring their bonuses. We're making sure that banks survive. And eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money. And they will cash out. And we will be paying higher taxes, we and our children, will be paying higher taxes so those people could have those bonuses. That's not fair. It's not acceptable. It's not even good economics."

Johnson expands these arguments on his blog, THE BASELINE SCENARIO:

"[W]eakening the big banks and their bosses should not be seen as an unfortunate side effect of beneficial medicine. It is exactly what we need to do under these circumstances. Unless and until these banks' economic and political influence declines, we are stuck with too many people who know exactly what they can get away with because their organizations are "too big to fail."

And weakening these banks (or actually having some of them go out of business and be broken up) as part of a comprehensive system reboot - with asset revaluations at market prices and a complete recapitalization program - will help return the credit system to normal.

Picture: "Wall Street Bubbles; -- Always the same." Caricature of John Pierpont Morgan as a bull blowing bubbles which say "inflated values." May 22, 1901. by J. Ottman Lithographic Company. Collection of the Library of Congress. High resolution image available here.

Bill Moyers Journal . Special Feature:Inside The Banking Crisis

"This is the big one."

- Economist James K. Galbraith

Since the first rumblings of the sub-prime mortgage meltdown, BILL MOYERS JOURNAL has stayed on the story of the economic collapse with original reporting and insightful interviews, making headlines and informing the public with greater range and depth than any other telecast.

From economists to community organizers, Wall Street financiers to historians, guests on BILL MOYERS JOURNAL provide powerful insight into the roots of the crisis and have stimulated a crucial national dialogue on its causes, effects and possible solutions.

You can explore and share JOURNAL coverage of the meltdown in the video player below. Also, find the must-read guide to understanding the tumult, and a complete list of links to JOURNAL coverage in the References and Readings.

Too Big To Fail

The Austin Lounge Lizards perform their satirical ode to bank bail-outs. Written by Lindsey Eck.

Any company that is too big to fail is too big to exist!