Too Politically Connected To Fail In Any Crisis

Over the past 30 years Wall Street captured the thinking of official Washington, persuading policymakers on both sides of the aisle not to regulate (derivatives), to deregulate (Gramm-Leach-Bliley), not enforce existing safety and soundness regulations (VaR), and to stand idly by while millions of consumers were misled into life-ruining financial decisions (Alan Greenspan).

This was pervasive cultural capture or, to be blunter, mind control.  But when the crisis broke it was not enough.  Having powerful people generally on your side is not what you need when all hell breaks loose in financial markets.  Official decisions will be made fast, under great pressure, and by a small group of people standing up in the Oval Office. 

If you run a big troubled bank, you need a man on the inside – someone who will take your calls late at night and rely on you for on the ground knowledge.  Preferably, this person should have little first-hand experience of the markets (it was hard to deceive JP Morgan and Benjamin Strong when they were deciding whom to save in 1907) and only a limited range of other contacts who could dispute your account of what is really needed.

Goldman Sachs, JPMorgan, and Citigroup, we learn today, have such a person: Tim Geithner, Secretary of the Treasury.

We already knew, from the NYT, that most of Geithner’s contacts during 2007 and 2008 were with a limited subset of the financial sector – primarily the big Wall Street players who were close to the New York Fed (including on its board).  And the announcement of his appointment was widely regarded as very good news for those specific firms.

But Geithner himself has always insisted that his policies are intended to help the entire financial system and thus the whole economy.

“SECRETARY TIMOTHY GEITHNER: I’ve been in public service all my life. I’ve spent all my life working in government on ways to make our financial system stronger, better economic policy for this country. That’s the only thing I’ve ever done. And I would never do anything and be part of any policy that’s designed to benefit some piece of our financial system. The only thing that we care about and the only obligation I have is try to make sure this financial system is doing a better job of meeting the needs of businesses and families across the country.”  Interview on Lehrer NewsHour, May 8, 2009

Geithner’s defenders insist that his specific contacts while President of the NY Fed were a function of that position; “he was only doing his job.”

But today’s AP report, based on looking at Geithner’s phone records, from the inauguration through July, suggest something else.  How can anyone build an accurate picture of conditions in the entire crisis-ridden financial sector primarily from talking to a few top bankers?

The list of phone calls is not the largest banks, because some of the biggest are hardly represented (e.g., Wells Fargo), it’s not the most troubled banks (e.g., Bank of America had little contact), and it’s not even investment banker-types who were central to the most stressed markets (Morgan Stanley was not in the inner loop).  And small and medium-sized banks (and others) always bristle at the suggestion that their interests are in alignment with those of, say, Goldman Sachs.

Geithner’s phone calls were primarily to and from people he knew well already - who had cultivated a relationship with him over the years, shared nonprofit board memberships, and participated in the same social activities.  These are close professional colleagues and in some cases, presumably, friends.

The Obama administration had to rescue large parts of the financial sector, given the situation they inherited.  But it absolutely did not have to run the rescue in this exact fashion – bending over backwards to be nice to leading bankers and allowing their banks to become even larger.   Saving top executives’ jobs under such circumstances is not best practice, it’s not what the US advises to other countries, it’s not what the US tells the IMF to implement when it helps clean up failed banking systems, and it’s not what the FDIC implements for failed banks under its auspices.

The idea that you could leave big US bank bosses in place (or let them get stronger politically) and do meaningful regulatory reform later has always seemed illusory – and this strategy now appears to be in serious trouble.  But presumably Mr. Geithner’s financial advisers told him this was the right thing to do.

By Simon Johnson

74 responses to “Too Politically Connected To Fail In Any Crisis

  1. I had long ago given up the hope that Obama/Geithner would work for us Americans.

    Given this level of corruption, what is one supposed to do? I too have written about this kind of stuff in my weekly column. You write it, some people read it, business as usual goes on.

    I have no experience at living in a Banana Republic, but I’m learning fast.

    How do we get things done?

  2. bungalowbill

    Don’t blame Geithner, blame the guy who gave him the job.

    “The fish stinks from the head.”

  3. Dear Dave:
    I understand your frustration. But let’s not sit back and let this go unpunished. Obama/Geithner may think that we will re-elect the current slate of incumbents in Congress because hey, those guys are are moneyed and loaded with special interests running ad campaigns 24×7, right?

    Wrong!!!

    Just make sure when you get the ballot in November 2010 that you go through the list carefully and make sure you vote every incumbent out of office. That’s right, I mean every incumbent in Congress across the board, across the aisles, out of office!

    Why?

    Because: power corrupts and absolute power corrupts, absolutely! Too many in Congress have run roughshod over the will of the people. They think they can never be voted out of office because they have power, money and redistricting. But one thing they don’t have is: third world style ballot capturing. They have to hope and pray that middle class votes like us (which includes most Americans) will never exercise our right to vote. But, they need to be shocked out of their slumber and their arrogance. We need to exercise our rights and surprise them. Nay, I mean put the fear of God (and people) in them!

    Why vote every incumbent out? They did no wrong! Easy, easy. There has been a crime in Congress and that is too often the corruption of easy money which has blinded every incumbent to be timid and uncaring. We need to tear down that wall of Silence (“Omerta”) and corruption. We need to dismantle the cozyness of complicitness and bring every member to expose every other member. Remember, how we got rid of the Mafia in New York? we got one guy to confess and the rest of them started ratting each other out. We need to make these members of Congress to be fearful of being exposed. They need to understand that they must expose corruption or risk themselves being exposed. This will happen only when we “rat” out all the incumbents who stands for office. We need new blood.

    Also, some of you might suggest that “they are all the same”. They are the cynics amongst you. Ignore them. They probably said that about the Founders of our Republic. No change will happen by cynics carping. All true change occurs only from true people who are pure in their designs and in their heart. Even if we elect crooks, because of the pureness of our designs, they will change into positive agents for change. Trust me, I have seen it happen before and it will happen again. Since, The founding of the Republic, since Abraham Lincoln, since MLK, there have always been cynics of true change and they will laugh us down. But we will win by making incremental changes, in our own small way.

    try it!

  4. Re David Cohen’s comment

    It’s not quite living in a Banana Republic – at least through the FIA we get to know who Geithner does talk to on the phone.

  5. You have thirty years experience of living in a Banana Republic, but are just now waking up to it.

    History tells us that nothing will help except massive strikes and boycotts of existing incumbent politicians at election time. Of course that assumes the challengers will be honest statesmen as opposed to opportunists.

    Americans are now on the receiving end of a new kind of disaster capitalism, in which the traditional IMF role is played by China. For now the Chinese are taking an avuncular pleasure in supplying financial rope to our clueless leaders. What happens next is entirely up to them.

    The alternative remedy (although not terribly attractive) is: return of Glass Steagle plus derivative transparency plus leverage limitations plus Fifties level taxation of speculative gains (and elimination of offshore tax loopholes) plus a crash to return asset values to levels at which investment begins to make sense. Can you imagine a national bankruptcy in which all consumer debt is wiped out and every mortgage is written down to fair value? Or we could have Argentinian or perhaps German inflation circa 1923.

    The only conceivable soft landing requires an unlimited Chinese appetite for Treasury bonds at current interest rates. Lets hope Chinese bankers studied at the University of Chicago.

  6. It’s unfortunate (perhaps terminally so) that Barack Obama never met…and apparently never HEARD OF….President Harry S. Truman.

    But it is also TOTALLY CONSISTENT with his actions to date!

    After voting for him twice to date, I’m getting “off the bus”. Maybe THAT is where “the buck stops”.

  7. Less gets done–that’s why banana republics are poor. But what does get done involves a mixture of connections and bribes.

  8. How refreshing to see a REAL cut-to-the-chase post !

  9. Relationships are cultivated for advantage are the norm in imperial courts historically, and no-one can tell if they are actual friendships. Timothy Geithner is a rich man. But I would not like to be Timothy Geithner. And what of Summers?

    Do I really need to point out that the “vote against” strategy, uniformly applied, will hand the country over to the likes of Bush, Cheney, and worse?

  10. This post is spot-on, except perhaps for the “mind control.” Mind control is too exotic and paranoic. It is entirely predictable that most people will participate in a well-sponsored Ponzi scheme if given the opportunity, without any extraordinary level of conspiratorial coordination and planning.

    The problem is that our leaders willingly sponsor Ponzi schemes. No Manchurian candidate required.

  11. I like the defense that Timmy “was only doing his job” because it has the great merit of being true.

    Why not just accept that leaving the big bankster bosses in place, and making the big banks even bigger, was Timmy’s job? And by all accounts, he’s done it well.

  12. Alan McConnell

    “All the rascals” will never get voted out.
    But what about Public Financing of Elections.
    That would take a lot of the purchasing power
    of the Rich away.

    Such a bill has been introduced. It is
    H.R 1826, and MoveOn.org is pushing for it.
    It could bring Greens — also Huckabeeites, etc –
    to a great deal more public notice, if not
    to actual power, at least for a while.

    Best wishes,

    Alan McConnell, in Silver Spring, MD

  13. Lavrenti Beria

    “History tells us that nothing will help except massive strikes and boycotts of existing incumbent politicians at election time.”

    To target incumbents and not the entire system is naive. You’ll simply get the same scum with a different letter after their name. Face it, we’re past the point where elections and parliamentary remedies will be of any help. As Stalin so imaginatively pointed out: “The people who cast the votes don’t decide an election, the people who count the votes do.” And the people who count the votes in our case are those that have sold themselves out like whores to special interests. You’ll never fix that inside these structures. Only massive public demonstrations and economy stopping, general strikes hold any hope.

  14. some guy in a cube

    The business model of these large banks is so unsustainable that from now on they will only be able to survive by receiving massive subsidies from taxpayers, who are mostly workers and small businesses. In such a dysfunctional system, it is critical to maintain strong personal relationships with government decision makers on the one hand, and to have to those officials rely on you for guidance on the other.

  15. November is exactly the wrong month in which to vote the rascals out. What we have in November is a choice between candidates of a party that is utterly beholden to moneyed interests and one that is only slightly less beholden. Very slightly less. Recent experience shows that the party utterly beholden to moneyed interests is also utterly stupid about everything but the most vicious form of politics, lazy, and unwilling to think beyond slogans. Voting out incumbents in November simply means voting for the greater of two evils.

    Vote against incumbents in the primaries, and only if you have reason to believe they are less beholden than the incumbent. Every candidate needs money. Figure out where the money comes from before you vote.

  16. John Karabaic

    This post reminds me of the folks I knew when I was a young Lieutenant in the Air Force, buying F-15′s and associated avionics.

    There was a class of civil servant who clearly did not have the skills to critically examine the work the weapons contractors were building for us. They completely relied on the contractors.

    There was another class, usually older, who had played an active design role in avionics and weapons systems, who actually knew how to build things and could critically examine designs and test plans.

    The change seems to have occurred when it became official career policy to discourage civil servants were from actually doing things and they were encouraged to become pure managers of people.

    I’m not sure that applies here, but it could be that Geithner is at sea as much as anyone is here, and he’s relying on the candid advice of the folks he’s managed in the past.

    Whether he has the critical faculties to evaluate that advice is a good question.

  17. Wow. I guess Geithner has to ask Mommy for permission each time he needs to cross the Street. Dimon et al must be so proud of the little monster they’ve raised. At least Geithner got the “servant” part correct.

    This administration is quite thoroughly captured by the banks. Even though officials issue countless platitudes about reform, they are actively trying to frustrate it behind the scenes. Yesterday, Henry Hu, head of the SEC’s Division of Risk, Strategy, and Financial Innovation, described to the House Financial Services Committee how banks will game the administration’s proposals for derivatives regulation, and he even made some concrete suggestions for how the proposals might be improved. Barney Frank told him that he had an uphill battle going against the administration on this topic and that it was Frank’s opinion that the administration got it right. At some points, Frank would not even let Hu talk.

    What government officials have not sold their souls? And yet we let them stay in power. Perhaps we have the government we deserve.

  18. Not much to add. Simon Johnson should be applauded for talking about these phone records (as should whoever forced the issue with the Freedom of Information Act). It’s great to see that Simon is not afraid to name names and hold people accountable for their duties and actions. I hope Simon and others will continue to name names and hold officials accountable when appropriate. Kudos!!

  19. We are denied the one advantage to living in a banana republic — fresh bananas. One day home from the market and they turn black.

  20. Re David Cohen’s comment

    It seems to me that there is a lot of preaching to the choir on The Baseline Scenario and other blogs devoted to the financial crisis and the banks.

    The issue needs to be framed in terms of the interests of most Americans. Yes, it is annoying that banks have special access to Timothy Geithner, but so what? Big banks have probably always had special access to the Treasury Secretary since Alexander Hamilton.

    Rather, the issue needs to be framed in terms of the dollar cost of the subsidies to banks from the Federal Reserve and the Treasury, possibly in the several trillion dollar range (it will certainly be trillions if the banks default on the various loans).

    The real resources represented by trillions of dollars do not come from nowhere. They are coming from other sectors of the economy: from smaller banks that did not make bad bets on the housing bubble, from agriculture, from manufacturing (what is left), and so forth.

    Most ordinary people and most businesses do not benefit from these policies. Businesses are seeing declining demand, higher interest rates from the megabanks, and so forth.

    If people want to change this/stop it, they must phrase the debate in terms of the self-interest of the unconverted and indifferent.

    Document the cost, demonstrate the cost, never let the debate move away from the cost.

    Sincerely,

    John

    P.S. Note that Dean Baker at CEPR has some posts detailing the specific costs of some of the implicit and explicit subsidies.

  21. I recommend Thomas Ferguson’s book: Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems

    I believe that this theory of poly science comes closest to explaining the current US political system. Republicans and Democrats are more similar then most would like to admit.

    If you want to sample, some of Ferguson’s ideas check out this interview / documentary:

    http://goldenruledocumentary.blogspot.com/

  22. That says it all, I guess.
    We do not now have a government in the US that represents our interests.

  23. Sasher,
    I like your idea, but am not optimistic that it will happen.

    One of the problems today is that our tenured politicians bring tons of pork to their constituents. They will make them fear the loss of this pork – someone else will get it instead. So the voters will keep reelecting the person who will keep the pork coming.

    I once read a quote to the effect that one of the greatest risks of democracy is that politicians will bribe The People with their own money.

    Of course, the other way it’s working is that politicians are bribing us today with our grandchildren’s money.

  24. …help the whole financial system and thus the whole economy
    They way things are going, the financial system will be all that’s left of the economy.

  25. All good points. Here’s another hint: vote for people with some iota of integrity who are
    not in either of the two major parties

  26. You have Ralph Nader to thank for getting FOIA.

  27. Some of those guys seem to have more job security than Japanese salarymen in the 1960s. How many have been at it for more than 30 years?

  28. Actually, you’d be surprised by the numbers who have studied at the University of Chicago. But they aren’t dummies; they are already looking towards how to dispose of their dollar holdings.

  29. The CEPR paper is a bit of weak tea. The largest banks rely far more on non-depository funding which adjusts to market rates more quickly than deposits at community banks. The entire analysis is based on the assumption that the market hadn’t priced-in the TBTF premium before it was formalized. It almost certainly had – that’s why Lehman’s failure was so destabilizing. I don’t know why they assume the persistent gap in costs of funds isn’t partially the result of TBTF.

    If you’re mad about TBTF, let your congressman hear about it. Check out the website http://www.mycommunitymybank.org/

  30. I should be clearer: they are NOT buying T-bills like they were last year and are moving dollars into tangible goods.

  31. “Mind control” to describe how bankers control politicians like marionettes is not too far off.

  32. David Goldstein

    >Just make sure when you get the ballot in November 2010 that you go through the list carefully and make sure you vote every incumbent out of office. That’s right, I mean every incumbent in Congress across the board, across the aisles, out of office!

    **************

    The problem with this line of thinking is that new “reform” candidates from either the GOP or the Dems comes up through a statewide “System” that already has them beholding to special interests and “constituents” who pay to get them there. Plain ole voters are just rubes helping things move along, because they vote based on wedge issues that have no bearing on the real world.

  33. bungalowbill

    Thanks for the links! The video made me want to buy the book.

    The opening statement is really from Adam Smith’s “Wealth of Nations”? It sounds like something out of Karl Marx or some conspiracy theorist.

  34. China is busy buying up anything that’s not treasury bonds. They want to divest themselves of dollars and buy just about anything else around the world they can hold for a presumed increase in value, if not now, eventually.

    It’s been feeling rather Weimar Republic-ish to me every time I go to the grocery store.

    Maybe they could go back to letting banks be banks as Krugman suggested yesterday on his blog. I’d like a savings account that pays 5% like I had through the 80s, as I recall. Series EE savings bonds paid 6% for a long time. I met people who actually retired early for having intested in those savings bonds. Compound interest wasn’t just on purchases on credit back then.

  35. The judicial branch (Rakoff et al) seems to be the only governmental body willing to throw tacks in the road. Unfortunately it can be the slowest moving branch.

  36. bungalowbill

    Great post!

    This Hu guy should resign if he doesn’t want his name associated with the next bubble.

    Are you the same Bond Girl who defended financial innovation and complexity or are you some identity thief trying to subvert her message?

  37. This is a perceptive comment. The 90 % of Main Street has to have a framework to better appreciate the screwing they are taking from Corporate America, the oligarchs and
    banksters on Wall Street. Otherwise they will continue to change channels to some other mind deadening entertainment.

  38. The Banana Republic became “official” in my view when Obama, whom many of us had hoped would implement serious reforms, hired Tim Geithner and Larry Summers. (He wasn’t even President yet!)

    So, when our much needed FDR turned out to be something more akin to Warren Harding, we knew where we stood at last after the Clinton/Bush years.

    It is remarkable that such a huge betrayal of trust came at the time of our direst need.

    Please don’t tell me that I am “just waking up” to something I’ve been troubled about the B-movie actor Ronald Reagan dazzled us with his ability to roll over the poor and further enrich the wealthy.

  39. Sounds right to me.

    Let’s all get together to create the world’s biggest slush fund.

    And then we’ll send our designated representative to Washington, who will say upon his arrival–

    “I’m here to see that the right thing gets done. Who do I bribe?”

  40. To clarify:
    Are you implying that Bush/Paulson did?

  41. Geithner: How about those Yankees?

    Blankfein: You betcha! We’ve got some swaps out on those guys right now — a billion in the bank if they lose!

    Geithner: Why didn’t you just go to Vegas or use a local bookie?

    Blankfein: Then we wouldn’t be able dump the loss on you guys if things do work out.

    Geithner: Okey-Dokey. Let me know if you need some help. Oh — somebody’s calling — it’s Barney Frank. (Shouts away from the phone: “Tell him to leave a message!”)

    Blankfein: I’m not rooting against the Yankees, but you’ve got to cover your ass!

    Geither: Or I’ve got to cover your ass!

    [both guys break up laughing]

    Just another day at the office for Tim & Lloyd

  42. Especially when dealing with the uber-rich, since it takes more resources to prosecute them – i.e. platoons of lawyers looking for technicalities.

  43. Toby Esterhase

    What’s the counterfactual?

    If Geithner was doing his job with integrity, how many calls to these guys should we expect him to have made, given the job he was trying to do, over that period? Because I’m looking at this data, and it’s not telling me what it’s telling you. How do we know he wasn’t having furious rows with them?

    There is a concept somebody called an “affective death spiral”, where you fall in love with your pet theory, and the more you look around the more it seems to explain, and the more it explains the truer it seems – has it not been confirmed so many times? At which point you are completely lost, you have stopped looking for other explanations.

    There are a bunch of commentators above me, and I suppose the author of this post, who looked at the AP story, and just knew it illustrated what they knew already, how the administration is beholden to the banks, how the country is run by a cabal of corrupt fraudsters, or fools, or how the USA has become a banana republiic etc.

  44. LOL. Same Bond Girl as always.

    Many of the financial innovations that exist are essential to doing business. We can have them without being in a state of total financial anarchy, however. (Which we will still have under the administration’s plan.)

  45. Count me among the 90% of Americans who don’t know much about economics. So I wonder, Toby, how would I look at what’s actually going on and get a feel for whether or not Geithner was getting ideas from or having fights with his friends and former associates?

    Also, I think the point of both the AP story and Simon’s post is that Geithner didn’t talk to a broad spectrum of insiders. It does seem to me that if he were having arguments with his friends, he might have thought to call other potentially supportive insiders. But beyond that, it also seems to me that Geithner should have realized that his job was larger than his former associations encompassed. Powerful people tend to confuse their circle with the universe.

  46. It’s your mind, fellow citizen. If you can’t control it someone else will. All defenses of suckers that they “didn’t get an even break” are wastes of time.

  47. Check out a former Australian PM’s (the one who was brave enough to call his own country a banana republic) view of Mr Geithner.

    http://www.smh.com.au/opinion/obamas-economic-saviour-savaged-as-keating-lets-rip-20090306-8rk7.html?page=-1

  48. I should be surprised that we have young lieutenants buying our F-15s, but somehow I’m not. My brother worked as a civilian federal employee for the Air Force, as a “contract compliance monitor” for 30 years. His desk was at Northrup or Lockheed, or whoever had the contract for a given project. These were 5-10 year projects and he became best friends with the contractor’s employees, because that’s who he spent all his time with. When he retired he went to work for Lockheed. It’s the same system from top to bottom.

  49. “Perhaps we have the government we deserve.” A statement that cannot be made too often. In a democracy, you always have the government you deserve.

  50. You always were the shrewd one Toby. Now that Karla’s been captured, who could possibly threaten the free world?

  51. The financial system has been most of the economy for some time, followed by entertainment, drugs, and war. Where have you been?

  52. I think we should reserve judgment until Geithner goes on American Idol to play air guitar to Bob Marley’s “I shot the sheriff” and then holds a press conference to announce his corruption.

  53. Some satire:

    The Government Sachs Gorilla and the Government Motors Mouse, a
    fable for our time.

    http://www.jmcgowan.com/gorilla.pdf

  54. This is nothing new; already in March 1999 in the Daily Journal of Caracas I wrote that one of the best “evidences of global warming… is the displacement towards the north of the geographical boundary of the Banana Republics”

  55. No “mind control” is spot on. Almost everyone believed the storyline of the risks having been so diluted in the great oceans so as to become harmless; or placed in hands so strong they could manage anything… and this is most probably why Simon Johnson and so many with him did not say a word… so therefore I now read “mind control” as an expression of sincerity on his part.

  56. The way the AP story reads,the plan to bail out the financial system was created by four men: Tim Geithner and the CEOs of Goldman Sachs, Morgan Stanley and Citigroup. It would be interesting to learn what was actually discussed by these four men before the bailout plan was announced and implemented. Were any notes kept by Geithner on these phone conversations? Were any notes taken at key meetings? If so could they be accessed through an FOI request? Work cut out here for some intrepid investigative journalists working for media organisation that has not been captured.

  57. The four men might also agree to be interviewed by journalists because the conversations, in question, are of historic importance. It would shed light on what transpired at a most critical phase in the midst of a national crisis that lead to a $700 billion expenditure. Arguably it might be their duty to discuss how decisions were arrived at.

  58. What happened, over the last 20 years since we, the taxpayers, have not been paying attention. Are you kidding? This is an old story, except that only recently the superrich and superpowerful have honed their skills to razor sharpness. The final stroke has been media capture. Oh, yes, we do have a free press, and lots of descenting opinion from all angles. But, look at the big networks: Only MSNBC has shown a propensity, along with PBS (of course) to air really diverse and, in many cases, divergent opinions. I used to think that CNN played things pretty much down the middle, but has shown far too much respect for the rich and powerful in the national debate.

    We are now fully captured by the plutocracy at every turn. Not just the finacial behemoths, but by big oil, big coal, big health care, big retail, big fast food, big everything. They have the bucks for advertising, and so they buy off the major media from showing cogent descent. They can’t afford to anger the folks who pay the big bucks for air time. Please note that in the internet age, the best in depth reporting is no longer available in print, since most newsprint doesn’t have the funding to support the best reporting, except for the few who are still around.

    We all have been captured. The elections are incumbent and media controlled because of campaign contributions and media capture. In fact, finding a poll nowadays that one can trust is almost impossible.

    I would say the there will be some incumbents who should be voted back in, but certainly less than 10%. I have completely given up on the R & D society. They really are all just shill for those who pay to keep them where they are. Only publically financed campaigns will make a difference, but that still won’t stop the fat cats from advertising blitzes, after all they won’t be shut down because of the first amendment.

    I believe that we are headed for major national and international disasters within the next two years if nothing changes. There could be a serious revolution in this country, as more and more have less and lass, and fewer and fewer have more and more. It is not just a Banana Republic, but looks very much like France right before it’s revolution. We need to start eating cake before the superbanks tell us to.

  59. This is almost the exact reason why George Read of Delaware was so firmly opposed to representative democracy, and insisted on having a Senate elected by the legislators (middle- and upper-class educated professionals) of the several States. However, Mr. Read’s concern was more that, in a representative democracy, the wealthiest folks of the wealthiest States would devise ways to bribe the People with the money of the only moderately wealthy folks and States.

    Which, really, is what has come to pass since we went to direct election of Senators. Huh. Guess maybe we shouldn’t have tinkered so much with a Constitutional framework built with five centuries worth of hindsight.

  60. Public financing of candidates will not ever take away the purchasing power of the richest class. There are a great and growing number of loopholes in all of our attempts to regulate political speech, and the Supreme Court is very likely to destroy the current McCain-Feingold bans on direct corporate contributions. Offering public financing will be ineffective unless it is more attractive than private pay, and then it will just save the rich people their money. Let’s face it – who but the richest rich can afford to spend two years running for an elected office that doesn’t pay enough to cover the cost of living for a middle-class family near D.C.?

  61. I think the point is that, if timmy was doing his job with integrity, the calls should not be to the same 3 or 4 people. Best case it looks like a conflict of interest.
    Pardon my bias, but I’ve had the gut feeling that the guy was the equivalent of Wormtongue from LOTR, since Feb or Mar.

  62. There is a fundamental, and inescapable, tradeoff between giving government the ability to rapidly and efficiently (and informally) extract information from society, and insulating government from undue influence. There are mechanisms that can ease the tradeoff, but many were largely gutted in the prior administration. Rebuilding them will take years. One can hardly blame a young and inexperienced bureaucrat with limited knowledge of the global economy from relying on his network of contacts; really, one should blame those who filled a senior post with someone was really more suited to a job as an ambassador or mid-level economic diplomat.

    In any case, there remain multiple interpretations of Geithner’s performance over the last 1 year: He is entirely bought and sold, and just playing the part. He is a little boy in a grown man’s world. Or – the most hopeful – he was an idealist who got conned by his “friends”, but is finally developing a real backbone.

    From time to time, small signals give hope that the latter interpretation may be right. Yet, when given the opportunity to seize the initiative, Geithner continues to shrink from it. Then again, he could simply be following orders to wait until after the health care debate is concluded.

    So who knows how much of the real Geithner we’ve seen? Among other things, Larry Summers seems to thoroughly dominate the inner circle, and keep Geithner properly cowed.

    If I could only choose one of them to eject from the administration, I still think it would be Summers.

  63. I don’t know — they all strike me as Rubin’s boys. Not sure there’s much of a difference in the end. I’m not so optimistic about Geithner — indeed, downright disguster would be more accurate — but I’ve been wrong many times before and we can always hope your third scenario emerges. It’s a nice idea, anyway.

  64. Plebeianswillrevolt

    Dude, I’m with you.

  65. No, this is the Bond Girl who after Simmons was sucked dry by private equity firms of $750 million in profits over the years said “we are talking about mattresses here, right?”. This is the Bond Girl after reading that Simmons employees in 1989 had lost their pensions and after reading 1,000 Simmons employees (1/4 of their work force) were laid off last year who said “This story is nothing.” and “I could write these stories for the NYT on my lunch break.” That Bond Girl.

  66. It seems I was wrong in speculating that Geithner had been broken by the Administration–it is clear that he was already the creature of the big banks, long before this administration. On the other hand, I doubt that working with Larry Summers has exactly made him a critic of great wealth. (Or maybe I still have it wrong, and Geithner is really the one in charge.)

  67. Alan McConnell

    It will indeed not take away the purchasing power
    of the Rich. But Public Financing will give
    “purchasing power” to the rest of us. Two
    salubrious effects it will have: Office holders
    will have increased ability to throw lobbyists
    out of their office; and all kinds of other people,
    who now don’t have a look-in, will be able to
    mount serious campaigns.

    Re McCain-Feingold: the argument against it is that
    it suppresses free speech. Public financing enhances
    speech, no?

    Re D.C. and living expenses. I live in Silver
    Spring, just outside the Beltway, and I live
    quite nicely on 1/3 what a representative makes.
    I would expect that a successful Green candidate
    or even a Huckabeeite would do just as well!

    Best wishes,

    Alan McConnell, in Silver Spring

  68. Ken, Lynchburg, Va.

    While not an economist or financial expert, it appears we have entered a “downward spiral” of no return! The disparity between Wall Street-Washington beltway and Main Street America, the former industrial centers of America, are beyond recovery. The Republican concept of reverse “Socialism” of tax cuts for the wealthy, and tax cuts, massive subsidies and deregulation of greed for corporations; billions and billions of tax dollars going to the richest among us; has created a criminal and corrupt corporate state masquerading as a democracy, a state that is bankrupt both financially and morally.

  69. I think it was William Graham Sumner who said A and B decide what C will do for D.

  70. It has just struck me (I just might be a little dumber than I thought) after watching a National Geographic show about hunting tactics of killer whales, that we, as the middle class in the Western democracies, are an endangered species.

    The programme I watched showed as a pod of orcas corralled a large school of fish in a small space then, while the fish were in a frenzy, stunned them with their tails. We have all seen accounts of lions or wolves getting a herd of prey worked up and causing a stampede which reveals weak or wounded members of the herd.

    I believe that that the economic crisis that still envelops all of us is akin to such a stampede.

    While everyone has suffered financial loss in this time of difficulty, no one has suffered more than the middle class. More members of what was the middle class, have lost most, if not all, of their holdings.

    There is no question that those of great wealth may have lost more in absolute terms but, by and large they are still left with sizable wealth.

    Those in the middle class are in a state of panic, crushed by what has happened to them and wondering what will occur next.

    In the meantime, there is growing pressure on legislators, from those who possess the resources with which to exercise such pressure, to cut taxes.

    For whom can this be of benefit? Certainly no one enjoys paying taxes and who wishes to pay more than necessary?

    Consider, however, that if you are one who has lost his or her job, you are unlikely to reap the benefit of lowered income taxes. You have less income. Many in such circumstances are desperately trying to determine where their next meal, mortgage payment or loan payment is going to be found.

    Those of influence, on the other hand, are thinking of such worrisome matters.

    The herd is on the run, without leadership, without guidance. This presents a wonderful opportunity for those who are in position. Lower taxes will put much more money in the hands of the ealthy than it will for the middle class.

    We are always told that this extra money will be used for investment in plant and equipment. People will be hired thereby making once again, consumers thus bringing the economy back to life.

    In past recessions and depressions, this was the outcome.

    However, this is not like prior economic downturns. A great many otherwise very good companies have been crippled by the financial debacle. What I fear will happen this time is that lower taxes will give to people within the group of acquisitors the ability to capture these crippled firms. Rather than use the additional funds resulting from lower taxes to build new businesses which need new employees, there will be a rush to scoop up existing businesses. Further, because so much capital has been eliminated, there will be fewer competitors to buy these businesses.

    Once acquired, these businesses will likely be staged for breakup and full or partial liquidation. If they are retained, their staff of employees will be trimmed and streamlined. Either way, jobs will more likely be eliminated than increased.

    Over the terms of the Bush presidency, the wealth gap between the rich and the rest of society, grew tremendously – surprising in a time when the “average” American supposedly did marvelously. The truth, of course, is that executives in large corporations made out like bandits and the average working stiff lost ground after considering inflation.

    I am not suggesting that there is a conspiracy in this endevour. It is, in my view, simply a matter of capital doing what capital does naturally if left unchecked.

    There is little need of government intervention in business. there is, however, a very great need for active government regulation of the rules under which business is to operate. There must be a concerted effort to eliminate the concept of “too big to fail”. Conglomerates and vertically integrated companies must be severely examined to determine if they should be broken up and the bias should be in favour of such action.

    the anti-trust legislation must be given life and invoked much more frequently. I suggest that the future of the middle class, as we know it is at stake.

  71. I cannot vote because I am not a citizen yet(i don’t see why i should apply for one…)I have always wondered where do these crooks come from? And I begin to realize that they are not crooks, they are children of the system, they are born into this mess we call USA. I just got an attachement in my email showing Hiroshima 60 years after destruction(check it out), on the other hand it shows Detroit 60 years after the bombing of Hiroshima. Can somebody tell me what is the difference between these two cities? what makes the difference? I know. Japanese don’t make good cowboy movies.

  72. I think that revolution might be a good idea. I don’t see any other way. They blow up a bubble, cheat and steal on the way up, the bubble pops, they steal from our treasury(with the Fed’s help), say that they “work hard” and deserve big bonuses, and need to continue to be “too big to fail” to compete! Lies and nonsense and despicable behavior at every turn. They should be SHOT. I wish to God that we could do what China does with scumbags.