July 22, 2009
From June to July, John R. Talbott, author of The 86 Biggest Lies on Wall Street and Obamanomics, sat down at his keyboard with Simon Johnson, the Ronald A. Kurtz professor of entrepreneurship at MIT, former chief economist of the IMF, and current BaselineScenario.com blogger and cofounder, for an exchange of emails and ideas. The topic of conversation:
The economic crisis: Who caused it? Was it preventable? Was criminal activity involved in bringing it about? And is it over?
From John Talbott:
There has been no criminal investigation to date, so evidence supporting criminality has not been uncovered — no one is looking for it. Liberals hate to think that Obama, led by Geithner and Summers, is part of a grand cover-up scheme, but that is exactly what is going on. How else can you explain the lack of criminal investigations? Why isn’t the FBI breaking down the doors of the commercial and investment banks and grabbing computers so as to preserve incendiary e-mails that will most definitely implicate executives? Why are managements that caused this still in their jobs and still receiving bonuses? Are the bonuses paid to the folks at AIG that caused its collapse nothing more than hush money? How can the rating agencies still be in business? Why don’t we make one arrest and lean on the bankster to see if he will fold like the cheap suit that he is and name other conspirators? The FBI spends more time investigating $2,000 drug buys than they have to date investigating the biggest heist in the history of the world: $40 trillion, that’s trillion with a T, that’s 40 million bags each containing $1 million.
And from Simon Johnson:
What happened? The finance industry has captured, intellectually, both public policy and a wide range of public intellectuals. People really believe that we need something like today’s financial sector in order to resume reasonable growth in this country. This is despite the fact that financial innovation has added little to productivity in the past two decades, and it flies in the face of the obvious damage done recently by overborrowing at various levels. You point out specifically that economists have not done a good job in terms of explaining the deeper causes of the crisis, and I would agree with that. But again I think this is due to the wrong mental model more than anything else. Most economists think that if we’re talking about Indonesia or Korea or Russia, considerations of political economy — i.e., who has power, what they are trying to do, etc. — are first order. But as soon as we start to talk about the United States, many reasonable people think that the same special interest politics are second order and that the real action comes from more technical considerations, such as the “business cycle” (whatever that really means).
For Part I of the complete exchange—and to join the conversation it’s beginning to spark—take a look at Salon.com. And for more of John Talbott’s account of the financial crisis and its causes, see The 86 Biggest Lies on Wall Street from Seven Stories Press.