Wednesday, May 12, 2010
The Banks. Watching a Tragedy in Real Time.
Simon Johnson, 5/12: "... because leading governments are unwilling even to seriously discuss difficult economic scenarios (“too radical”, “don’t rock the boat”, “powerful interests are opposed”), when they bring in new policies there is a great deal of improvisation and major mistakes are entirely possible. “Change only when we must” is a dangerous approach – see Hank Paulson in September 2008 (Lehman allowed to fail; AIG “saved” after a fashion; TARP proposed without any oversight, etc.)
And this is exactly why our seriously dysfunctional megabanks – in the US and in Europe – are not being “fixed”. When the crisis breaks, people like Tim Geithner and Larry Summers say it would be too dangerous to even fire some boards of directors, let alone change CEOs in top banks. The anti-crisis improvisations focus in Europe – as they did under Mr Geithner’s direction here – on “just save the big banks, as is.”
But after you save the banks, they again become so politically powerful that they fight hard to block serious reform. They already turned back the effort to really limit their scale – the Brown-Kaufman amendment, defeated last week. And now they are striving to prevent effective restrictions on their scope – the Merkley-Levin amendment (supported in principle by Paul Volcker, the White House, and the president, coming up this week.
If you don’t fix the system now, you’ll have another major crisis – and then you likely won’t fix the system again.