13 Bankers: The Wall Street Takeover and the Next Financial Meltdown - Couverture rigide

Johnson, Simon; Kwak, James

Couverture rigide

ISBN 10 : 0307379051 ISBN 13 : 9780307379054

Editeur : Pantheon, 2010

Synopsis

13 Bankers Johnson and Kwak examine not only how Wall Street's ideology, wealth, and political power among policy makers in Washington led to the financial debacle of 2008, but also what the lessons learned portend for the future. Full description

A propos du livre

Extrait :

They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.
—F. Scott Fitzgerald, The Great Gatsby

INTRODUCTION

My administration is the only thing between you and the pitchforks.
—Barack Obama, March 27, 2009
Friday, March 27, 2009, was a lovely day in Washington, D.C.—but not for the global economy. The U.S. stock market had fallen 40 percent in just seven months, while the U.S. economy had lost 4.1 million jobs.2 Total world output was shrinking for the first time since World War II.

Despite three government bailouts, Citigroup stock was trading below $3 per share, about 95 percent down from its peak; stock in Bank of America, which had received two bailouts, had lost 85 percent of its value. The public was furious at the recent news that American International Group, which had been rescued by commitments of up to $180 billion in taxpayer money, was paying $165 million in bonuses to executives and traders at the division that had nearly caused the company to collapse the previous September. The Obama administration’s proposals to stop the bleeding, initially panned in February, were still receiving a lukewarm response in the press and the markets. Prominent economists were calling for certain major banks to be taken over by the government and restructured. Wall Street’s way of life was under threat.

That Friday in March, thirteen bankers— the CEOs of thirteen of the country’s largest financial institutions— gathered at the White House to meet with President Barack Obama.* “Help me help you,” the president urged the group. Meeting with reporters later, they toed the party line. White House press secretary Robert Gibbs summarized the president’s message: “Everybody has to pitch in. We’re all in this together.” “I’m of the feeling that we’re all in this together,” echoed Vikram Pandit, CEO of Citigroup. Wells Fargo CEO John Stumpf repeated the mantra: “The basic message is, we’re all in this together.” What did that mean, “we’re all in this together”? It was clear that the thirteen bankers needed the government. Only massive government intervention, in the form of direct investments of taxpayer money, government guarantees for multiple markets, practically unlimited emergency lending by the Federal Reserve, and historically low interest rates, had prevented their banks from following Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual, and Wachovia into bankruptcy or acquisition in extremis. But why did the government need the bankers?

Any modern economy needs a financial system, not only to process payments, but also to transform savings in one part of the economy into productive investment in another part of the economy. However, the Obama administration had decided, like the George W. Bush and Bill Clinton administrations before it, that it needed this financial system— a system dominated by the thirteen bankers who came to the White House in March. Their banks used huge balance sheets to place bets in brand-new financial markets, stirring together complex derivatives with exotic mortgages in a toxic brew that ultimately poisoned the global economy. In the process, they grew so large that their potential failure threatened the stability of the entire system, giving them a unique degree of leverage over the government. Despite the central role of these banks in causing the financial crisis and the recession, Barack Obama and his advisers decided that these were the banks the country’s economic prosperity depended on. And so they dug in to defend Wall Street against the popular anger that was sweeping the country— the “pitchforks” that Obama referred to in the March 27 meeting.

To his credit, Obama was trying to take advantage of the Wall Street crisis to wring concessions from the bankers— notably, he wanted them to scale back the bonuses that enraged the public and to support his administration’s plan to overhaul regulation of the financial system. But as the spring and summer wore on, it became increasingly clear that he had failed to win their cooperation. As the megabanks, led by JPMorgan Chase and Goldman Sachs, reported record or near-record profits (and matching bonus pools), the industry rolled out its heavy artillery to fight the relatively moderate reforms proposed by the administration, taking particular aim at the measures intended to protect unwary consumers from being blown up by expensive and risky mortgages, credit cards, and bank accounts. In September, when Obama gave a major speech at Federal Hall in New York asking Wall Street to support significant reforms, not a single CEO of a major bank bothered to show up. If Wall Street was going to change, Obama would have to use (political) force.

Why did this happen? Why did even the near-collapse of the financial system, and its desperate rescue by two reluctant administrations, fail to give the government any real leverage over the major banks?

By March 2009, the Wall Street banks were not just any interest group. Over the past thirty years, they had become one of the wealthiest industries in the history of the American economy, and one of the most powerful political forces in Washington. Financial sector money poured into the campaign war chests of congressional representatives. Investment bankers and their allies assumed top positions in the White House and the Treasury Department. Most important, as banking became more complicated, more prestigious, and more lucrative, the ideology of Wall Street— that unfettered innovation and unregulated financial markets were good for America and the world—became the consensus position in Washington on both sides of the political aisle. Campaign contributions and the revolving door between the private sector and government service gave Wall Street banks influence in Washington, but their ultimate victory lay in shifting the conventional wisdom in their favor, to the point where their lobbyists’ talking points seemed self-evident to congressmen and administration officials. Of course, when cracks appeared in the consensus, such as in the aftermath of the financial crisis, the banks could still roll out their conventional weaponry— campaign money and lobbyists; but because of their ideological power, many of their battles were won in advance.

The political influence of Wall Street helped create the laissez-faire environment in which the big banks became bigger and riskier, until by 2008 the threat of their failure could hold the rest of the economy hostage. That political influence also meant that when the government did rescue the financial system, it did so on terms that were favorable to the banks. What “we’re all in this together” really meant was that the major banks were already entrenched at the heart of the political system, and the government had decided it needed the banks at least as much as the banks needed the government. So long as the political establishment remained captive to the idea that America needs big, sophisticated, risk-seeking, highly profitable banks, they had the upper hand in any negotiation. Politicians may come and go, but Goldman Sachs remains.
The Wall Street banks are the new American oligarchy— a group that gains political power because of its economic power, and then uses that political power for its own benefit. Runaway profits and bonuses in the financial sector were transmuted into political power through campaign contributions and the attraction of the revolving door. But those profits and bonuses also bolstered the credibility and influence of Wall Street; in an era of free market capitalism triumphant, an industry that was making so much money had to be good, and people who were making so much money had to know what they were talking about. Money and ideology were mutually reinforcing.

This is not the first time that a powerful economic elite has risen to political prominence. In the late nineteenth century, the giant industrial trusts— many of them financed by banker and industrialist J. P. Morgan— dominated the U.S. economy with the support of their allies in Washington, until President Theodore Roosevelt first used the antitrust laws to break them up. Even earlier, at the dawn of the republic, Thomas Jefferson warned against the political threat posed by the Bank of the United States.

In the United States, we like to think that oligarchies are a problem that other countries have. The term came into prominence with the consolidation of wealth and power by a handful of Russian businessmen in the mid-1990s; it applies equally well to other emerging market countries where well-connected business leaders trade cash and political support for favors from the government. But the fact that our American oligarchy operates not by bribery or blackmail, but by the soft power of access and ideology, makes it no less powerful. We may have the most advanced political system in the world, but we also have its most advanced oligarchy.

In 1998, the United States was in the seventh year of an economic boom. Inflation was holding steady between 2 and 3 percent, kept down by the twin forces of technology and globalization. Alan Greenspan, probably the most respected economist in the world, thought the latest technology revolution would allow sustained economic growth with low inflation: “Computer and telecommunication based technologies are truly revolutionizing the way we produce goods and services. This has imparted a substantially increased degree of flexibility into the workplace, which in conjunction with just-in-time inventory strategies and increased availability of products from around the world, has kept costs in check through increased productivity.”8 Prospects for the American economy had rarely seemed better.

But Brooksley Born was worried.9 She was head of the Commodity Futures Trading Commission (CFTC), the agency responsible for financial contracts known as derivatives. In particular, she was worried about the fast-growing, lightly regulated market for over-the-counter (OTC) derivatives— customized contracts in which two parties placed bets on the movement of prices for other assets, such as currencies, stocks, or bonds. Although Born’s agency had jurisdiction over certain derivatives that were traded on exchanges, it was unclear if anyone had the authority to oversee the booming market for custom derivatives.

In 1998, derivatives were the hottest frontier of the financial ser - vices industry. Traders and salesmen would boast about “ripping the face off ” their clients— structuring and selling complicated deals that clients did not understand but that generated huge profits for the bank that was brokering the trade.10 Even if the business might be bad for their clients, the top Wall Street banks could not resist, because their derivatives desks were generating ever-increasing shares of their profits while putting up little of the banks’ own capital. The global market for custom derivatives had grown to over $70 trillion in face value (and over $2.5 trillion in market value)† from almost nothing a decade before.

The derivatives industry had fought off the threat of regulation once before. In 1994, major losses on derivatives trades made by Orange County, California, and Procter&Gamble and other companies led to a congressional investigation and numerous lawsuits. The suits uncovered, among other things, that derivatives salesmen were lying to clients, and uncovered the iconic quote of the era, made by a Bankers Trust employee: “Lure people into that calm and then just totallyf——’em.” Facing potential congressional legislation, the industry and its lobbying group fought back, aided by its friends within the government. The threat of regulation was averted, and the industry went back to inventing ever more complex derivatives to maintain its profit margins. By 1997, the derivatives business even had the protection of Greenspan, who said: “[T]he need for U.S. government regulation of derivatives instruments and markets should be carefully re-examined. The application of the Commodity Exchange Act to off-exchange transactions
between institutions seems wholly unnecessary— private market regulation appears to be achieving public policy objectives quite effectively and efficiently.” In other words, the government should keep its hands off the derivatives market, and society would benefit.

But Born was not convinced. She worried that lack of oversight allowed the proliferation of fraud, and lack of transparency made it difficult to see what risks might be building in this metastasizing sector. She proposed to issue a “concept paper” that would raise the question of whether derivatives regulation should be strengthened. Even this step provoked furious opposition, not only from Wall Street but also from the economic heavyweights of the federal government—Greenspan, Treasury Secretary (and former Goldman Sachs chair) Robert Rubin, and Deputy Treasury Secretary Larry Summers. At one point, Summers placed a call to Born. As recalled by Michael Greenberger, one of Born’s lieutenants, Summers said, “I have thirteen
bankers in my office, and they say if you go forward with this you will cause the worst financial crisis since World War II.”

Ultimately, Summers, Rubin, Greenspan, and the financial industry won. Born issued the concept paper in May, which did not cause a financial crisis. But Congress responded inOctober by passing amoratorium prohibiting her agency from regulating custom derivatives. In 1999, the President’s Working Group on Financial Markets— including Summers, Greenspan, SEC chair Arthur Levitt, and new CFTC chair William Rainer— recommended that custom derivatives be exempted from federal regulation. This recommendation became part of the Commodity Futures Modernization Act, which President Clinton signed into law in December 2000.

We don’t know which thirteen bankers were meeting with the deputy treasury secretary when he called Brooksley Born; nor do we know if it was actually twelve or fourteen bankers, or if they were in his office at the time, or if Summers was actually convinced by them—more likely he came to his own conclusions, which happened to agree with theirs. (Summers did not comment for the Washington Post story that reported the phone call.) Nor does it matter.

What we do know is that by 1998, when it came to questions of modern finance and financial regulation, Wall Street executives and lobbyists had many sympathetic ears in government, and important policymakers were inclined to follow their advice. Finance had be - come a complex, highly quantitative field that only the Wall Street bankers and their backers in academia (including multiple Nobel Prize winners) had mastered, and people who questioned them could be dismissed as ignorant Luddites. No conspiracy was necessary. Even Summers, a brilliant and notoriously skeptical academic economist (later to become treasury secretary and eventually President Obama’s chief economic counselor), was won over by the siren song of financial innovation and deregulation. By 1998, it was part of the worldview of the Washington elite that what was good for...

Revue de presse :

"How Modern Wall Street—the most powerful and concentrated financial sector in the country’s history—both created the financial crisis and ensured a bail-out for its own benefit."
—The Economist

"Mr. Johnson offers an enticing vision of a Wall Street confined, its potency limited to put-downs and head-shaking: a Wall Street where right-sized banking is a do-gooder word for a safer, saner system that has learned from its mistakes."
—David Weidner, Wall Street Journal

“The best explanation yet for how the smart guys on Wall Street led us to the brink of collapse. In the process, Johnson and Kwak demystify our financial system, stripping it down to expose the ruthless power grab that lies at its center.”
— Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law School; and Chair, TARP Congressional Oversight Panel

“Too many discussions of the Great Recession present it as a purely economic phenomenon – the result of excessive leverage or errors of monetary policy or algorithms run mad. Simon Johnson was the first to point out that this was and is a crisis of political economy. His and James Kwak's analysis of the unholy inter-twining of Washington and Wall Street – a cross between the gilded age and a banana republic – is essential reading.”
— Niall Ferguson, Professor of History, Harvard University; Professor, Harvard Business School; and author of The Ascent of Money

“If the wads of money you’re stuffed into your mattress for safekeeping don’t keep you up at night, 13 Bankers will. A disturbing and painstakingly researched account of how the banks wrenched control of government and society out of our hands – and what we can do to seize it back.”
— Bill Moyers

“Essential reading for anyone who wants to understand what comes next for the world economy. Dangerous and reckless elements of our financial sector have become too powerful and must be reined in. If this problem is not addressed there is serious trouble in all our futures.”
— Nouriel Roubini, Professor of Economics, Leonard N. Stern School of Business, New York University; and Chairman of Roubini Global Economics

“Beautifully written and powerful. Ties the current financial crisis to a cycle of politics as old as the Republic, and to a pathology in our politics that is as profound as any that our Republic has faced. Required reading for the president, and for anyone else who cares for this Republic.”
— Lawrence Lessig, Director of the Edmond J. Safra Foundation for Ethics, Harvard University

“Simon Johnson makes it clear that our financial system is broken, and that Wall Street and Washington broke it. Sadly, he also makes it clear that they want to keep it that way. His gripping book explains how the economic crisis developed and what must be done to create a fair system, one that will benefit all Americans rather than just those who are the members of the club.”
— Herbert A. Allen III, President and Chief Executive Officer, Allen & Company

“The U.S. financial sector is incredibly bloated and a drain on the productive economy. It uses its enormous economic power to buy politicians and policies that favor its interests and perpetuates its power. This is the main argument of Simon Johnson’s new book. The views expressed are especially striking because Johnson is the former chief economist at the IMF. He has had decades of experience dealing with financial crises. This often required working with corrupt governments dominated by powerful financial interests. It is striking to see Johnson putting the U.S. government in this category.”
— Dean Baker, Co-Founder and Co-Director of the Center for Economic and Policy Research

“Johnson and Kwak embed the financial crisis in a sophisticated analysis of US economic history, explain its evolution with unusual clarity and propose policy reforms to prevent its ever happening again that are both straight forward and compelling.”
— C. Fred Bergsten, Director, Peterson Institute for International Economics

“13 Bankers is surely the only book about the financial crisis 2007-09 that begins with a quote from The Great Gatsby. But, the analogy is appropriate. Johnson and Kwak not only tell us in great detail how the crisis happened and what we must do to avoid another crisis, but they see the deeper political and cultural context that permitted carelessness and excess nearly to break the financial system and plunge us into a depression.”
— Bill Bradley, former United States Senator

“13 Bankers is a chilling tale of the dangers of concentrated economic, intellectual, and political power. Even if you do not agree with everything the authors have to say, this book makes it clear why ending “too big to fail” and reforming the institutions that perpetuate it – particularly the Federal Reserve – are essential for our nation’s future economic prosperity and, more fundamentally, our democratic system.”
— U.S. Senator Jim Bunning

“This is a timely, informative and important book. You may not agree with all the analysis but the issues so clearly discussed are real, current and vitally important. Financial industry reform must be undertaken soon; inaction, as the authors convincingly argue, would have dangerous consequences. This book explains it all and it’s great reading.”
— Lawrence K. Fish, former Chairman and Chief Executive Officer, Citizens Financial Group

“What Simon Johnson is telling us is that we are subjecting ourselves to rule by a self-perpetuating banking oligarchy. Which leaves two questions: Are we listening? And if we are, then what are we going to do about it?”
— Congressman Alan Grayson

“13 Bankers is a tour de force. For those many Americans who believe they have never received an adequate explanation about why the United States economy crashed in 2008, who is to blame, where their tax dollars went, and why the villains have thrived while everyone else has suffered, read this book or be prepared for history to repeat itself soon.”
— Michael Greenberger, Professor of Law, University of Maryland School of Law School; Former Director, Trading and Markets Division, Commodity Futures Trading Commission

“Prescient and powerful, 13 Bankers provides a battle plan for the fight to ensure that America’s ‘too big to fail’ megabanks will no longer be able to hold the global economy hostage while accumulating record profits, doling out obscene bonuses, and spending millions of dollars on lobbying to gut financial reform. Johnson and Kwak demonstrate that what is good for Wall Street is decidedly not good for Main Street, and present a bracing, and at times frightening, analysis of how Big Finance has undermined our political system. Most importantly, they offer specific proposals for turning things around. Our future depends on fixing our financial system; 13 Bankers shows us how.”
— Arianna Huffington

“13 Bankers is an absolutely brilliant and spellbinding forensic analysis of Main Street’s economic murder at the hands of financial behemoths who gambled recklessly with the taxpayers' chips while paying Washington to look the other way. From Jefferson and Jackson to South Korea and Russia, the book traverses time and space in documenting that banks that are ‘too big to fail’ are far too big to be preserved. The message is clear: bust the financial trusts and do it now!”
— Laurence J. Kotlikoff, Professor of Economics, Boston University, and author of Jimmy Stewart Is Dead.

“13 Bankers explains our financial crisis in the context of the recent experience of other nations and our own history. Our financial crisis fits a tediously familiar pattern of unrestrained, vulgar excess followed by collapse. We should heed the lesson that Simon Johnson and James Kwak draw: the continued concentration of economic and political power makes future economic crises inevitable and undermines democracy.”
— Congressman Brad Miller

“As Simon Johnson makes lucidly and compellingly clear, the problem with Wall Street leads directly to the core problem of our democracy. American politics now feeds on money, and Wall Street is where the money is. Unless we separate money from politics, we'll never be safe from another financial meltdown. In fact, we'll never really be safe. Read this fine book and get to work.”
— Robert B. Reich, Professor of Public Policy, University of California at Berkeley, Former U.S. Secretary of Labor

“Over the last 50 years, the FAA, the airline manufacturers, and the airlines worked together to make a highly complex air travel system more efficient and much safer. If you’ve ever wondered why, in contrast, our financial regulators and banks made our financial system less efficient and much more dangerous, you should read this book.”
— Paul Romer, Senior Fellow, Center for International Development, and Institute for Economic Policy Research, Stanford University

“Johnson and Kwak deftly survey the roots and aftermath of the financial panic of 2007-2009, daring to ask whether institutions deemed "too big to fail" are merely a symptom of a Wall Street that is "too well-connected to fail." Now, as policymakers, we find ourselves at a crossroads. Will we perpetuate this phenomenon or will we finally stand up to the barons of high finance? According to the authors, it is not too late to redraw the lines of regulation to protect taxpayers, investors, borrowers, and ultimately the financial system from itself. We in Congress would be wise to take their advice.”
— Congressman Brad Sherman

À propos de cette édition

• Éditeur: Pantheon
• Date d'édition: 2010
• ISBN 10: 0307379051
• ISBN 13: 9780307379054
• Reliure: Relié
• Nombre de pages: 320