The astute and convincing professor from MIT writes a lengthy and coherent essay to explain how it is that the banking sector took over the government and the economy after 1980, and especially after 1990, with a combination of smarts, lobbying, luck, influence-peddling and rules-changing. The heart of the story is much simpler than lists of maneuvers or the chronology of dare and caprice. It is the list of names who pushed through into government and then controlled the decision making that favored their own crowd. In a burst of candor, Simon Johnson identifies the characters from the Clinton, Bush and Obama administrations who were friendliest to what the professor calls "The Quiet Coup" of money:
"... Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup's executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson's predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.
"These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni--including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson--not only placed people with Wall Street's worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service..."
It is called the Goldman Sachs Conspiracy.
In the years I joked about it on air, I didn't focus on the simplicity of the Goldman Sachs theory. Why so many of the names in all the administrations had connections with one particular gang of rich men and women? The answer was blunt from wise and witty fellows like Charlie Gasparino, CNBC, and Jim McTague, Barron's. Wall Street chose one particular gang to work like fools stabbing at each other and their rivals in investment banking and then to volunteer, at a severe cut in pay, to serve in federal government as a friend of the banks. It made GS guys look like saps and boy scouts. It also made the White House a phone bank for the big bankers. Did it work as planned? Better than planned. The executive and then the legislative branches were ready to cooperate not only for campaign cash but also to provide recruits for new banking jobs. It became credible to go from doing deals with China for profit to doing deals with China for the US. Same fellow. Same customer. Same pay-off. I didn't say this. Smart people such as Simon Johnson said it to me, and now Simon Johnson writes it. He calls
it a "Silent Coup." The rude word is putsch. No one can ever be comfortable to hear that Tim Geithner, Hank Paulson, and L. Blankfein were in conversation that two days in September 2008 that the US government chose to bailout AIG. What did they discuss? The good of the country? After that fairy tale? How about the money GS wanted out of its counterparty deals with AIG? Did that money come up? Not a quiet coup. Noisy. I can hear them laughing. At us.
Maybe AIG was easy. Easy in that Shaq is coming at you in the ir with ball in hand and you're underneath the basket and for a split second you know that you are supposed to come out and confront him. Then reality hits.
Maybe AIG was easy.
I CAN HEAR THEM LAUGHING AT US. ALL THE WAY TO THE BANK.
Add Christopher Cox to the list of people named above. His career is extraordinary. He was unlucky enough to be Chairman of the SEC when Lehman collapsed and, before that, helped eliminate the uptick rule. McCain in his election campaign called for Cox to be fired and was, of course, criticized for this remark. Then there's the Madoff Scandal. Unlucky for us, Cox was one of five seats on the Federal Housing Finance Oversight Board, which investigated the soundness of Fannie Mae and Freddie Mac. Cox, also, was unlucky enough to be a Congressman from Orange County, when it defaulted on its loan obligations in 1994 and almost brought down the whole tax-free Municipal bond market. The cause: Derivative trading.
The private meeting, cited above among Geithner, Paulson and Blankfein sounds a lot like the private meeting Cheney had with the heads of some oil companies at the beginning of the Bush administration -- a few years before oil spiked to $147 a barrel.
"...the banking sector took over the government..."?! John, please! Was it not the other way around? I suppose it depends on which one can be considered to be the more insidious party. It's like asking when and how did education take over the government; when and how did major media; Big Oil (under Bush); pharma; unions; ACORN; Hollywood; Democrats; Obama. All these can be said to have 'taken over' government by their lobbying efforts, influence peddling, bribery; extortion and the like. It happens in acknowledgement of government’s intrinsic power to regulate and to bestow favors on certain favored parties at the expense of others. Throughout, government remains relatively undiminished. It produces and risks nothing. While private industries fight for their lives on the corpse-strewn (capitalist) battlefield, desperate for the slightest nod from Caesar, government’s influence and stature only metastasizes.
The argument could be made for the government’s need for expertise in certain areas. Lawmakers faced with decisions of how best to regulate the economy will naturally draw on the talent of fiscal experts who can most likely be found gainfully employed in the banking sector. Universities faced with having to provide courses in foreign policy will seek expertise from people who can claim to have actually had boots on the ground – in the Middle East, for example. Their views will not necessarily reflect our own self interests. These will nevertheless become mainstream as no other credible alternative exists. Mr. Samuel Birnbaum, the art teacher, who has been living in Jackson Heights all his life will not be asked for his opinions regarding the Israeli-Palestinian conflict, though he may well harbor his own non-partisan, common sense views. So, we might ask, how and when did Islamic radicalism take over the universities? In this case, we might say, the shoe fits.
So, now it has come down to this: (All) the people (united) against corrupt government. Those who still view our most immediate challenge as being able to successfully mitigate the frictions created by the pitting of one group of Americans against another are wrong. It is the government that is doing the pitting! It is doing so for its own nefarious purposes. It has come to the point of where we must defeat our own government to survive as a free nation. The sooner we understand this, the sooner we can begin to mobilize and do something about it.
Peter is right -- it is the other way around. Notice all the Wall St execs and CEOs who pushed for BHO's election and are silent on all the new initiatives. Even the Chicago Trib's Zell seemed to want to be in good stead when BHO was annointed. (In its entire history the Chicage Trib never endorsed a Republican presidential candidate until 2008)
Be afraid, be very afraid.
Who is this Mr. Government who is so blatantly sinister? What's his first name?? Middle Initial? SS#? I want to talk with him right now!!!
John Q, you say? 012 345 6789
The single biggest impediment to an overthrow of this land is the very expansiveness of the land.
I have an idea though. Some one start walking with a sign down some Interstate. Feel free to ad lib what the sign says, but, I suggest something simple like "Tak Bak Yur Kontry! Folo Me!" so everyone can understand that this ain't no recreational stroll. Call it a 100 million man march meeting in March on the Mall under G Washington's Monument in full view of Honest Abe (he would really appreciate this) sitting in repose.
We gotta try somthen!!! Far Wuds 4 Sal
BLING THEORY. AN ATTEMPT AT AN EXPLANATION
OF UNIVERSAL GREED, WHERE THINGS ARE LINKED TOGETHER IN
WAYS THAT DEFY ALL LOGIC.
Or: A revised conspiracy theory on why the banks failed.
Last year's short-selling of bank stocks was like a cyber attack: It started without warning and within the blink of an eye, it was over -- leaving total devastation in its wake. Because programmers can cover their tracks, the origin of a cyber attack can almost never be known. It could've come anywhere. It could've been done for a any reason. The fact that financial institutions were vulnerable made it easy. You would need an NSA (or, is that, NASA?) supercomputer to follow the money. Forget the SEC, Homeland Security should investigate.
Thus, based entirely upon superficial knowledge of the events, ungrounded suppositions, rumor-mongering, impure speculation, half-baked truths, and a certain degree of paranoia, here my revised conspiracy theory on why the banks failed:
It was an inside job. It was done for greed. It may have started as an attempt to influence the election. Iran was not involved. Then. it got out of control.
It began with the not-so-simple credit default swap (CDS). What is it? Who knows. As has been said many times, even though CDSs and their half-cousin, the derivative, are a trillion dollar industry, slot machines in Reno are better regulated. Who pushed for no regulation? Hedge funds. Wall Street biggies. Who supplied the CDSs? AIG.
Apparently, a CDS is like insurance policy where you don't have to be connected to the event in order to be a party to the policy. The conspiracy works like this: I take out life insurance on a total stranger and, then, I have that person murdered. I collect on the policy, I get linked to the crime. But, what if, I take out a credit default swap on a bank or a financial instrument, which I don't own, but on which I can collect if the bank or instrument fails? And, more importantly, what if I don't want to get caught? What do I do? Well, first, I conspire with a lot of very wealthy individuals who are friends and who, for argument's sake, control a number of investment banks, hedge funds and/or private equity funds. Then, I trade back and forth thousands upon thousands of CDSs, not with these individuals, but with their firms, foreign firms and anyone else who likes a sure thing. My friends do the same. In addition, I make sure these CDSs are so extremely varied and complex that it's not clear what, in fact, I'm actually insuring at all. Then -- not at the same time but close enough to make the plan work and, at the same time, not look like a plan -- I make sure all of us short the same weak financial institutions, like Bear Stearns or Lehman. But, of course, I do it illegally with naked short selling, which means I don't borrow the stock I'm shorting. This also makes me that much harder to track. Then, as we all know, these firms fail because they're over leveraged and under capitalized. Even better, this exposes the mammoth amount of sub-prime mortgages on their books, which they were packaging as CDOs but which they weren't able to sell, and, so were listed as assets but according to mark-to-market accounting rules were worthless. Then, everyone gets on the bandwagon. Everyone starts shorting Merrill and Citi, even Bank of America when it overpays for Merrill, etc. Turbo-charged ETFs, which short banks and are leveraged two or three to one, help the process. So does the elimination of the uptick rule, which was created in the '30s to prevent short-raiding. With everyone in on the action, it makes it look the the market is working. It makes it look like the market is too big to be manipulated.
I double dipped and it worked like a charm: I made money shorting bank stocks to make sure they failed and, then, I made money again with CDSs when the banks and their toxic assets became worthless. I may even have triple-dipped by shorting the dollar figuring, if American institutions fail, they'd take the dollar along with it.
But, then, when everybody started shorting AIG, AIG wasn't able to pay on the CDSs I owned. The law of unintended consequences kicked in. Things got out of control. Not to worry, I have friends in high places.
Spencer,
The Mr. Government is not a person and it is not paranoia that we are experiencing. What we are pointing out is that the spending has gotten so out of hand (with bailouts and new and existing programs) the only way out many people, including the Richie Riches, see is to look for more government which has rarely been very good at running anything or spending money wisely.
Hmm... I didn't realize all that. Sorry, jee!
About the revolution, though, I would start walking with a sign myself (thought about it many times), but, I have business to take care of... Far Wuds 4 Sal
I bet the Park Pols wouldn't even try and guesstimate the size of the crowd that would show up!
Interesting notion. I can almost follow it. Forgetting the details, it is clear that our financial house of cards was on the brink of collapse already. All it needed was a push. That's what I wish somebody would get to the bottom of: Who pulled the trigger? I'm sure there are people who know. To me, the timing has always been suspicious. Also, 'inside job' sounds credible. It gives credence to the unholy alliance between the banking sector and government that JB details above. So, now we know where to look. Who were the winners? Democrats. Who made money? Soros. Who hates Republicans? Soros.
Lastly, I believe it did get out of hand. Unintended consequences. Karma works. This thing is not over. Watch for the perps getting caught up in the schemes of their own making.
There's always one big problem with conspiracy theories: the government has an average IQ about 70 points too low to be able to carry off what we accuse them of. Bush was always portrayed as being a bumbling, stupid hick, but we were also expected to believe that he masterminded 9/11 and then successfully masterminded a coverup of 9/11. Right, and a single bullet killed JFK, too.
Now, we are suspecting the same from the Dems. Geithner can't open his mouth without committing some sort of gaff or another, yet he and others like him engineered a "Quiet Coup". If they were that smart, they wouldn't be working for government in the first place, they'd be in the private sector earning an honest living charging 29.99% interest to over-extended yuppies who can't say no to their shopaholic wives.
Lou- Mr. Government graduated cum laude from Berkley in geopolitical science.
Shouldn't that make him smarter than a 5th grader?
Just for clarification... the "single bullet" is the one that hit JfK and then caused J Connally's multiple wounds. Both men were wounded, but, Kennedy was then hit again in the head and it was the mortal wound.
I don't buy this. I smell some things wrong here. A former chief economist of the International Monetary Fund, now MIT professor talking of the revolving door in DC--What? The IMF is above all that?
The problem is centered in the U.S.A.? ... caused by the U.S.A.? Did I miss where he talked about London? ...about hundreds of billions of drug money-laundering? ...about U.K.'s Cayman Islands, etc.?
Has my mind completely given-in to exhaustion, or is there actually a relationship between "conditionalities" and what the IMF does? Economic Hitmen, anyone?
Does Simon Johnson of MIT ever discuss FDR in his classes? Alexander Hamilton? I'd be interested to see what he has to say about their plac(es) in our history. I'd be interested to hear what he has to say about the IMF and the World Bank.
Is he telling us anything we didn't already know here, or just putting a spin on what is somewhat rapidly becoming more widely known than the masters of the universe are comfortable with?
Is it just coincidence that these words appear just before the G20?
Color me suspicious. Slick article though.
That was always the purpose of the IMF, to play the heavy in third-world countries, "helping them find their checkbooks" (to quote Caddyshack) to make loan payments to our banks back while the peasants starved. Keeping the banana republics at least somewhat honest, or keeping their mummified governments propped up long enough to pay us back. A noble charter, indeed. Some day, somebody should do an accounting of all the money the US has ever paid to the IMF and all the economic benefit we've ever received in return. My guess is that it has been a net loss to us, but I don't have even 10% of the data I would need to sort that one out.
Mike, nice theory. I just read the article "The Big Takeover" by Matt Taibbi in the latest Rolling Stone (April 2, 2009) and am gasping at what I didn't know about CDO's and CDS's. This guy is a huge liberal who may have just laid out the crimes and named the criminals in a way that anybody can understand...and litigate on. If this doesn't start the perp walks, nothing will.
"I shouted out 'Who killed the Kennedys?!'
When after all, it was you and me."
Jagger/Richard
Hey Lou, did you and Mick read the article?