May 18th, 2010

_13 Bankers_, Simon Johnson and James Kwak

I picked this up hardcover at Willow Books. I was looking for it and _Econned_, which I failed to find and thus bought on the kindle and ultimately read first. This worked out okay, as I'm going to want to keep _Econned_ around for a possible second read; I cannot imagine wasting any more time on _13 Bankers_ than I already have.

Johnson and Kwak's thesis is simple: the financial crisis happened because a small number of financial institutions got to be really big (with respect to US GDP) and thus acquired a huge amount of political power. This concentration of political and economic power is incompatible with American democratic norms. The solution, similarly, is simple: break up the big banks, and all the other things that need to happen will follow.

The evidence that Johnson and Kwak rally to their argument is weird. The introduction is strong, telling the story of Brooksley Born's failed efforts to start the process of learning enough about derivatives to write appropriate regulation. Efforts which were stymied by some very familiar names (including Larry Summers) late in the Clinton administration. The first chapter posits long-standing antipathy to strong banks in the US, focusing on Thomas Jefferson (no, really, I am not making this up. I could not possibly make this up. Honestly, I'm surprised anyone else could), Andrew Jackson (that at least makes some superficial sense, altho arguing that Jackson's objection to a national bank was anything other than self-serving would require a _whole_ lot more evidence that the authors provide), Theodore and Franklin D. Roosevelt (those really do make sense). Chapter 2 surveys the debt and financial crises of the 1990s, repeating a lot of the creepy terminology of the time (crony capitalism, in particular), in the interesting and admirable goal of then describing the parallels between what happened then and what happened recently -- and contrasting the solutions imposed by the US and the IMF to the solutions attempted in the wake of our larger crisis.

After chapter 2, things improve dramatically. Three chapters are devoted to changes on Wall Street since 1980, Greenspan's loopholing of Glass-Steagall and its eventual overturn, Wall Street's involvement in financing just about everybody's political campaign, and finally, the metastasizing of structured finance over the last decade-ish. Then there's a chapter detailing the timeline of the crisis and bailouts.

A chapter is devoted to a variety of ideas to fix the problem, including Elizabeth Warren's consumer protection proposal, and the pattern of events after the crisis but prior to the publication of this book that made it really look like any kind of meaningful regulation had a snowball's chance in hell. From this, he concludes that better regulation cannot work (despite it working for decades in the wake of the FDR's reforms) and also that the real problem is that banks that are too big to fail are too big to exist. He also provides a series of arguments in favor of large banks -- they are some of the weakest arguments I've ever seen rallied in defense of large banks, so much so, it feels like a straw man. He finally concludes that some actually pretty weak limits on bank size will ultimately make it possible to correct all the other problems with the financial system.

I don't like it when someone creates an argument like this:

Major premise: A
Minor premise: blah, blah, bleeping, blah
Conclusion: A

That's not much of an argument, when you conclude one of your premises.

Johnson and Kwak are right about one thing: this isn't just a financial problem, it's a political problem. I don't think really big banks are a great idea, necessarily, but other countries have much bigger banks with respect to their GDP and they've figured out ways to regulate them successfully. And honestly, telling this whole story without any substantive discussion of leverage and weird trading strategies in all their mysterious and myriad new forms seems like it entirely misses the point.

If we seriously are going to engage in capitalism with all its attendant problems, we might as well recognize that capitalism is prone to cycles. And the way you manage those cycles is by keeping a sharp eye on the wise guys so you can rein them in whenever they start getting too clever for our own good. It is not an easy problem, and you cannot possibly solve it for ever and always. The idea that we can somehow magically avoid the hard problems of regulation by waving a wand and saying Thou Shalt Stay Small?

Really fucking stupid.

As for the long list of people who supplied recommendations for both this book and _Econned_? Let's just say that a whole lot of people got added to my logrolling list, aka, I may respect you, but not your recommendation.

casting overlap

The latest in casting overlap in the shows I watch: Peter Wingfield showed up as a bad guy in the first half of a two part season ending episode of NCIS:LA. So, where have I seen him before? On Sanctuary, Dead Zone and Stargate: SG-1. I've probably also seen him elsewhere. But geez.