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Simon Johnson Provides Mega-Sense on Cents

Posted by Larry Doyle on April 5, 2010 2:02 PM |

Is the Wall Street landscape 2010 merely a precursor to another systemic crisis in which the “too big to fail” banks come running to Uncle Sam for more bailouts? Selected senior bankers on Wall Street, including JP Morgan’s Jamie Dimon, have publicly stated that the markets and our economy need to ready themselves for crises on a more regular basis. If that is the case, is this truly any way to run a financial system, let alone a country? I do not think so, nor does Simon Johnson. Who is Johnson?

Simon Johnson is a professor at the MIT Sloan School of Management, a senior fellow at the Peterson Institute for International Economics, a member of the CBO’s Panel of Economic Advisers, and a founder of the fabulous site Baseline Scenario (along with James Kwak). Johnson and Kwak recently released a book which, I believe, will and should sweep America. The Wall Street Journal’s David Weidner recently interviewed Johnson and they discussed Johnson’s and Kwak’s book, 13 Bankers.

Having just listened to this 13-minute interview, I am going out today to get this book. Why? Johnson emphatically states that banks which are currently “too big to fail” must be broken up so they are “small enough to fail.” I find it very hard to disagree with him.

Johnson drills hard on what I define as the Wall Street-Washington incest. Johnson highlights how the major banks in our nation have tripled in size as a percentage of GDP. He paints financial regulation and regulators as ineffective, and Senator Dodd’s proposed financial regulatory reform as a proposal which will be largely ineffective.

He pulls no punches in pointing out the massive hubris on display on Wall Street. Johnson also provides a strong historically comparative perspective on the battles waged by Teddy Roosevelt to break up the monolithic giants of industry in the early 20th century.

I strongly encourage you to review and save this video clip. Share it with friends. Johnson knows of what he speaks. Meanwhile, I am running out to get the book.


  • coe

    Pretty interesting commentary, LD, and one filled with reasonable and constructive sense…when we think back over the past few decades and watch how the unfettered growth and poor risk management in the banking sector – both in commercial as well as in investment banks – quite literally changed the business and cultural landscape to one of global greed, self-aggrandizement, celebrity, leverage, and stunningly dangerous levels of compensation (much supported by benign regulatory neglect and deposit insurance to boot), shouldn’t we all admit that Simon is on target and not speaking “meaningless mush”…his framing the dichotomy as a tug of war between banking as utility vs banking as speculation also seems to hit the mark…on the other hand, why, though, when we think of the Dodd bill and the current Administration and Congress and compare things as he does to the Roosevelt eras, do we believe that the country was working then with leadership that actually liked America to one that appears not to today? The most frightening thing in the entire video seemed to me to be the commentary, shared by many cited, that we are destined to face recurring crises every 3-7 years…frankly, that simply cannot stand – it is unacceptable when the price, including massive unemployment and unspeakable burdens on future generations via taxpayer subsidies, is just too big – that, LD, is a prediction that must fail! Sounds like a must read…

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