The omens are everywhere. Iran is close to obtaining nuclear weapons. The eurozone is in crisis. The U.S. unemployment rate is near 10 percent. America's social insurance programs threaten to bankrupt the country. And"”most unusual"”the Washington Nationals are above .500.
The sunlit season of college commencement has been darkened this year with news of plagiarism. The school paper at Connecticut College, the College Voice, reported last month that one of the speakers at last year's commencement, a graduating senior called Peter St. John, wowed his audience with a speech that had been lifted paragraph by paragraph from another commencement address given at Duke in 2008 by the writer Barbara Kingsolver.
"Now, the Senate Republican leader, he paid a visit to Wall Street a week or two ago," said President Obama at a California fundraiser for Barbara Boxer in mid-April, putting on a mocking, homespun voice. "He took along the chairman of their campaign committee. He met with some of the movers and shakers up there. I don't know exactly what was discussed. All I can tell you is when he came back, he promptly announced he would oppose the financial regulatory reform."
To judge from the guffawing that followed, few in attendance realized that Obama is more dependent on "movers and shakers" in the financial sector than any president of our time, although the files of the Federal Election Commission make this clear as day. The movers at Goldman Sachs, whose top employees were grilled before the Senate Banking Committe last week, gave Obama's party three times as much money in the last cycle ($4.5 million) as they gave to Mitch McConnell's ($1.5 million). The shakers at Citicorp gave Democrats almost twice as much ($3.1 million) as they gave Republicans ($1.8 million).
So every time the president accuses Republicans of trying to "block progress" or of defying "common sense," as he did that night, he is executing a dangerous tightrope walk. His party's electoral fortunes depend on his making forceful calls for reform of our banking laws. His party's fundraising fortunes depend on his ensuring that no serious reform"”of the kind that endangers the big banks' size and power"”ever happens. That may be why the Democrats' strategy of painting the Republicans as obstructionists on finance reform has gained little traction. By the same token, if Republicans ever did get serious about reforming the banks"”and even about breaking up an industry that has turned into a Democratic war chest"”they would put Democrats in mortal peril. There seems no chance of this. Obama's taunts show a confidence, verging on certitude, that Republicans' hypocrisy is as deep as his own.
What does it mean, the inability or unwillingness of either party to change or discipline the big banks in any way, even after all the havoc they have lately caused? In the year and a half since the implosion of Lehman Brothers, Simon Johnson, who was the chief economist of the International Monetary Fund in 2007 and 2008, is the only person to have come up with a plausible explanation. He has done so by examining the United States as an IMF analyst would examine some bankrupt basket-case of a country in what used to be called the Third World. Johnson believes that the leaders of the American finance industry have turned into the sort of oligarchy more typical of the developing world, and that they have "captured" the government and its regulatory functions. Johnson laid out this bombshell thesis in the Atlantic a year ago.
There are many ways for countries to blunder their way into big economic trouble: Kleptocracy, capital flight, or a commodity-price crash can all spark a panic or collapse. Nevertheless, Johnson wrote, "to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work." In a gripping new book, 13 Bankers (Pantheon, 304 pages, $26.95), written with his brother-in-law James Kwak, Johnson explains why those changes aren't happening in the United States.
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