“The people of this country are no longer making the rules by which they wish to live”: Talbott/Johnson, Part III
July 24, 2009
From Part III of the Talbott/Johnston exchange at Salon.com on the following topic:
The economic crisis: Who caused it? Was it preventable? Was criminal activity involved in bringing it about? And is it over?
Forty million Americans are unemployed, millions have lost their homes, and most have taken a very substantial hit to their incomes, retirement savings and wealth. Why aren’t Americans in the streets protesting this corrupt, enormously damaging criminal enterprise? I have traveled enough around America to realize that even though the current situation is enormously complex and not all Americans can describe exactly how the CDO market works, almost without exception every American can relate to you his frustration with how corrupt this government is and how unjust corporate lobbying and special influence in Washington has become. They get it. As a matter of fact, some of my high school-educated friends from my home state of Kentucky understand it a lot better than my Harvard-educated friends from Wall Street.
So I don’t think the current challenge is figuring out exactly what caused the crisis. Focusing on what caused this episode will lead to narrow regulatory reform that reminds me that we all now take off our shoes at airports because one crazy fellow had the idea of putting a bomb in his heel. So while reform is needed in subprime mortgages, securitization, derivatives, and even in the magnitude of our financial institutions, none of these get at the fundamental problem: The people of this country are no longer making the rules by which they wish to live.
Fortunately (in a sense), the banks cannot back off from their most egregious behavior. Perhaps this is in their DNA; definitely it is in their organizational culture and how they see the world — the people who run the biggest financial institutions really think they are the masters of the universe and are proceeding on that basis.
Their profits, their wages, their bonuses, and their behavior have begun to antagonize people greatly. Already, some of my contacts who are close to the administration wince at the latest news from the financial sector, be it the bonuses that were paid last year to senior people who oversaw major mistakes (some of whom are now rewarded with senior policy roles!) or the blatant bragging about political influence that some CEOs are now making public.
And even if some sensible people at these banks would like to rein in employee compensation to more moderate and reasonable levels, they have a problem. If you lower the wages for your people, another bank — perhaps one based in Europe — will hire them away with a crazy package. The rat race, across companies and between people, means that this can only be curtailed through regulation. But the survivor banks are so strong politically that they will defeat all meaningful regulation for compensation.
This very success makes them more vulnerable to further criticism and backlash.
Thanks very much to both Simon Johnson and John Talbott for an excellent exchange. Part I and Part II are still available over at Salon. And as John said: anyone interested in building a grass-roots movement of ordinary Americans to fight back against the banks and corporate lobbying should email John Talbott directly—and get informed by reading The 86 Biggest Lies on Wall Street.