Tuesday, April 13, 2010

Simon Johnson: When He Talks, Politicians Better Listen

Simon Johnson's new book, 13 Bankers, has just come out, an instructive primer on the serious flaws in the U.S. banking system. Johnson and coauthor James Kwak explain how "too big to fail" is a dangerously erroneous concept, because:
(1) The market does NOT efficiently, effectively, regulate itself, witness the Great Depression
of the 1930s and the Great Recession of 2008-2009. Both economic disasters occurred during
largely deregulated eras.
(2) Since it's U.S. taxpayers bailing out the banks when their high-risk practices bring them to
bankruptcy's brink, the market is NOT providing any solutions; indeed, this policy amounts to taxation without representation. (Did anybody actually agree to this, other than the bankers and politicians?)

Simon Johnson has more credentials AND savvy than anyone else around the Beltway when
it comes to economics. He was the IMF's Chief Economist, is an economist at MIT's Sloan School of Management, an author and lecturer.

13 Bankers should be required reading for Congress, the White House, and all and sundry in
Washington, D.C. As Mr. Johnson has said during frequent TV appearances, the lessons of history, ignored, inevitably return to haunt and harm. I'll reiterate it:

George Santayana must be spinning in his grave.


  1. It's Earth Day,2010. PBS has just interviewed Larry Summers, who has advised several presidents including Obama on macroeconomic matters. He made a major faux pas in saying the regulation of banks (breaking them up into smaller pieces) was tried BEFORE the Great Depression, implying that policy wasn't effective.

    --Whoa! The Pecora Hearings and the resulting two Glass-Steagall acts occurred during FDR's terms and proved extremely effective for 75+ years. Serious deregulation in allowing Glass-Steagall to lapse in the late '90's helped to bring on the Great Recession of 2008-2009, Larry, and don't you forget it--you were there.

  2. Er, Amber, your math skills ARE slipping!
    It is 65, NOT 75 years that Glass-Steagall
    was in effect, 1999-1934, NOT 2009-1934!!