Looting: Is Simon Johnson Right?
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The chart is by James Kwak who writes at The Baseline Scenario.
He is also co-author with Simon Johnson, MIT professor and a former chief economist of the International Monetary Fund, of an important and depressing piece in The Atlantic: The Quiet Coup
In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.
Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity.
...
Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.The second scenario begins more bleakly, and might end that way too. ... A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.
Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.
The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression ... If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.
I am not that pesimistic - yet. What do you think? Is Simon Johnson right?
Posted by b on March 27, 2009 at 15:06 UTC | Permalink
"... we may yet see dramatic action on the banking system and a breaking of the old elite."
I am not that optimistic.
Posted by: Cloud | Mar 27 2009 15:30 utc | 2
I'm not sure if The Big Takeover by Matt Taibbi in Rolling Stone has been linked to or mentioned hereabouts.
The global economic crisis isn't about money - it's about power. How Wall Street
insiders are using the bailout to stage a revolution
...
People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits...
Posted by: Hamburger | Mar 27 2009 15:43 utc | 3
This article is much more radical than Mat Taibbi's article in Rolling Stone. I dont think Taibbi really understands the history of power in the US government. The rich have always had it -- the current situation is nothing new, only more obvious.
Johnson poses two scenarios -- immediate collapse, with the possibility of revolutionary change, or long-term collapse, with continual looting. This is a powerful statement, that should focus the mind. Thanks for posting this, b.
Posted by: senecal | Mar 27 2009 16:23 utc | 4
1-in-3 odds on worse, much worse, here's how:
(1) America's financial imbalance gets fixed abruptly and mostly by expenditure reduction, lack of savings prevents comfy Japan-style stagnation, and path dependence disrupts trade patterns just long enough to shut down industries worldwide.
(2) America dodged the fascist bullet in the thirties but this time our luck runs out as bankers respond to reform efforts by throwing their weight to the right.
Time for us to start thinking like the third-world elites that we've become, and brush up on our skills: capital flight, tax evasion, bribery, and emigration.
Posted by: ...---... | Mar 27 2009 16:27 utc | 5
yes.definitively.he is right.
what is more: Obama has started lying to be able to go to war:
remember the people who did 9/11 came from Hamburg and Saudi Arabia? They have to be fought in Pakistan now.
I am sure the administration knows what this means for Pakistan as a state. I would not trust anybody if I was Iran.
Posted by: outsider | Mar 27 2009 16:35 utc | 6
o 6) yeah, that chart looks more like the percentage of Defense spending as a ratio of
all other discretionary spending, at 66% (200% of health and human resources spending)
and will continue to climb, even as the H&HR spending is eclipsed by deficit interest,
until US has a defacto Fascist State, whether you want to call it that, or "Change",
"Hope for Change", or "Hope I Changed My Drawers", when the Great Liquidation begins.
Everyone I know is either building a bunker in the outlands, or planning to emigrate,
although the majority of them realize they'll never achieve those goals, and are now
working into their retirement in dribs and drabs, holding off nursing home vampires.
You can't really understand fascism until the American Pflegeheim Lager captures you.
A whole lifetime of arbeit macht frei, to end up as a drug-interaction lab rat.
Posted by: Elliot Ness | Mar 27 2009 17:49 utc | 7
Krugman today ("The top officials in the Obama administration still believe in the magic of the financial marketplace and in the prowess of the wizards who perform that magic.") has provoked nearly 400 comments- some pretty good.
Posted by: Hamburger | Mar 27 2009 17:55 utc | 8
What's the point of that graphic? I don't understand - the baseline is useless without a comparison. What about the pay-per worker for IT workers? Auto? Airline pilots? Civil engineers?
His implication is clear: bankers made more and they didn't deserve it.
Posted by: Jeremiah | Mar 27 2009 18:12 utc | 9
It just shows what a picture of sectoral market cap shows: hypertrophy of the sector with more to skim. The economics of what's happening now is reversion to the mean. The politics is resistance to mean-reversion.
Posted by: ...---... | Mar 27 2009 18:44 utc | 10
I can't say I disagree with him, but what does Mr. IMF have as the answer? The IMF always has an agenda. What's its agenda for the U.S.?
Posted by: Obamageddon | Mar 27 2009 19:19 utc | 12
Barack Obush, the Democrooks and the Repugnicans are waging
naked all out class warfare against the American people.
This country is being systematically looted and it will
continue until there is nothing left.
I watched Bill Moyers' interview with Johnson and he was
talking about "malefactors of great wealth" holding the
global economy hostage in order to get what they want, which
is trillions of dollars of taxpayer money in order to keep
and increase their wealth.
Nothing short of a violent revolution will stop this and you
can be sure that is what the global financial elite are
preparing for.
Posted by: ecoli | Mar 27 2009 20:18 utc | 13
ecoli #13
nothing short of a violent revolution will stop this and you
can be sure that is what the global financial elite are
preparing for.
Yes, and preparations include financing and directing, if one has the finances and the directors.
They do, as in past. As I've posted before, only hope for we villeins would be a James Bond villain. Lacking same, cultivate one's own garden, larder, still, artesian well, ammunition, library, bandages, trade goods, friends, family ... inland.
The French Revolution happened because the privileged classes that enjoyed tax and other immunities were unwilling to give up those privileges, even when the monarchy was facing fiscal collapse.
Posted by: lysias | Mar 27 2009 23:08 utc | 15
What is there to say?
The US collapses in ALL scenerios.
There are many collapse scenerios: Chaos-and-collapse, Fascism-temporarily-disguising-collapse, Popular-revolution-guiding-the-way-to-collapse, Stairstep-collapse, Bouncing-ever-downward-collapse, Infinite-downward-spiral, &c. The probabilities vary with the scenerios: They are not all equal.
The timelines vary too.
There are NO non-collapse scenerios. From a theoretical perspective, that window closed around year 2000. As a practical matter it closed in 1980: That was the year Americans elected a government dedicated to looting out the national infrastructure while ignoring the economic significance and strategic requirements of resource limits.
U-shaped depression? No way: L shaped, IF WE ARE LUCKY. Just as likely, it is I-shaped: Descent with no bottom.
Recovery? In your dreams!
--Gaianne
PS Will Europe do better? I do not really have the knowledge to judge, but I do note that stupidity reigns, and the array of wrong choices is vast. At leat this much can be said: Europe will NOT do better until it decouples from the US.
Posted by: Gaianne | Mar 28 2009 6:33 utc | 16
Can the economy keep going held together with duct tape, baling wire, and chewing gum? Nope. It's all down to when and how it falls apart. No doubt that we (and our childen's children) are being looted by people who already have obscene amounts of money and power. As harsh as it sounds, a collaps sooner rather than later would be better in the long run for the vast majority.
Posted by: pk | Mar 29 2009 19:06 utc | 17
I think the real question that we should be asking is:
in the face of these two scenarios, what's the rest of the world going to do?
WWII saw Russia, Britain, China and the U.S. gang up on Germany and Japan.
WWIII may see China, Russia, the EU and Japan gang up on the U.S., Israel and Britain.
The Saudis will try and weather it out with the highest bidder.
Everyone else will just try to shuffle their support to the left while keeping their heads down.
There are those who say that U.S. technology will be able to guarantee a victory --
but if that were true, then we wouldn't be seeing the U.S. elite freaking out about Terrorism.
What that scenario does hold some hope for, however, is a re-evaluation of the Westphalian system. Neither China nor Russia has ever fully accepted it.
Posted by: china_hand2 | Mar 30 2009 10:42 utc | 18
China_hand2-
The elites aren't freaking out about terrorism, they're trying to keep the population freaked out about the smalltime terrorist, so we'll ignore the big terrorist (mutinational corps and their flunkies).
Kill one man, you're a murderer. Kill many, and you're a conqueror. Kill them all and you're a god (and lonely).
But the world war you picture is awful scary, though I think the EU would be divided and split between those factions rather than remain a cohesive group of nations.
Posted by: d.13 | Mar 30 2009 14:32 utc | 19
The comments to this entry are closed.
yes. Look for lots of chaos when the coasts go, and remember that dear David Berkowitz said in the early 90's that he and other The Process members were paid to sow instructed chaos in the late 70's.
Posted by: plushtown | Mar 27 2009 15:21 utc | 1