Is the United States becoming like Russia?
Yes, that's the case says MIT management professor Simon Johnson. His piece in the Atlantic Monthly argues that the finance industry has effectively captured the US government. "Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008-attended by top policy makers from a handful of rich countries-at which the chair casually proclaimed, to the room's general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker," Johnson writes. "A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan's pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: "The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks."
Financial Times columnist Martin Wolf says it's not that bad. Corruption for one thing isn't as rampant as it is in Russia. But he says restructuring is necessary and in order for that to happen, the big financial institutions need to be solvent. Also there is a need to drop the belief that there are institutions are too big to fail. "That is not capitalism, but socialism,'' Wolf writes. "That is one of the points on which the right and the left agree. They are right. Bankruptcy – and so losses for unsecured creditors – must be a part of any durable solution. Without that change, the resolution of this crisis can only be the harbinger of the next."
Still, there is no sign that the world has recognized this, particularly with the G20 moving to muzzle accounting standard setters. It's a point I raise in my column here.
It's not just about cleansing the banks of toxic assets. It's about restoring trust in the system and until that happens, there can be no full recovery.
no comment untill now