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Fully Subscribed

by digby

Last night’s Moyers with James Kwak and Simon Johnson was a must see. (You can see the videoat the link if you missed it.) It was a timely discussion of the systemic problem we face. Essentially we are an oligarchy. And it’s getting worse, not better.

I think this comment from Kwak, gets to the nub of it:

BILL MOYERS: How can it be that a Robert Rubin, former Secretary of the Treasury, pulls down $100 million as a senior advisor to Citigroup and claims he doesn’t know the risk that was involved in what he was trying to sell to clients and foreign officials? How can that be?

JAMES KWAK: I think there are two things. There’s a narrow and a broad view of this. The narrow view is I think Rubin is actually not lying. I think it is true that Rubin did not know what the risks were. Although he certainly should have known what the risks were. And that’s because he was fully subscribed to this ideology that free markets are good. That the market will take care of itself.

That, he also suffered from a lot of the blindness that corporate officers and directors have. Corporate officers and directors manage these enormous organizations with tens of hundreds of thousands of people. They have very little idea what’s going on. They’re getting their information from subordinates, who are giving them a filtered view of the world.

On the other hand, when he says, no one could have foreseen this. This is what I call an intellectual cover up. And I say that because it’s very disingenuous. Over the past 20 years, these banks used their economic power and their political power to engineer an unregulated financial environment in which precisely this sort of thing could happen. And in that sense, I think that this was not an accident. It was not a natural disaster. It was not unforeseeable. It was the product of the efforts by the sector over the past 20 years to reshape Washington and to engineer an environment that would allow them to make as much money as possible.

Simon talked earlier about money. And we know that the financial sector, especially Wall Street, has been, has made enormous contributions to both campaign contributions and lobbying expenses. But I think there were, there were two more potent weapons in their arsenal. One is the revolving door. So, we’ve seen an enormous number of people passing back and forth between Washington and Wall Street over the past 20 years. This is not a new phenomenon. It happens in every industry. But there are certain things that make it especially pernicious when it comes to finance. One is that, one is a question of incentives. So, compared to other industries, Wall Street can simply offer enormous amounts of money. I’m not saying that everyone did that. I’m not saying that even the majority of people did that. But that is, that is very clear.

Yes it is. For instance, I had no idea that Mike Oxley — the guy whose name is on the Sarbanes-Oxley Act which was enacted in the wake of Enron to penalize those who obscure publicly reported financial information — is now working as a lobbyist for the financial industry. It just doesn’t get any more obvious than that.

Johnson and Kwak are both big proponents of the Volcker rule which would break up the big banks. They are having a bit of an academic argument with Paul Krugman, who thinks that the size of the banks isn’t the problem but rather the lack of regulation. What I gleaned from this show however, is that the break up of the banks isn’t just intended to prevent TBTF but also to break up some of the political power that’s pooled in these huge institutions. I think it may be the more important element.

In any case, watch the show if you missed it or at least look over the web-site and catch the high points. We’re about to go into intense negotiations on financial reform and if you aren’t up to speed on this, you won’t be able to follow it.

My biggest fear, as I’ve written before, is that this fantasy of bipartisanship is going to lead them to allow the Republicans to water down the bill to uselessness only to have the Republicans vote against it and successfully demagogue it for the fall as another bail out. In other words the worst of all possible worlds.

Of course, if what Kwak and Johnson say is correct, that would be exactly what all the incentives in our system would predict would happen. It’s all win-win for the individuals involved in the game. The rest of us, not so much.

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