By Simon Johnson
Bloomberg’s reviewer, James Pressley, emphasizes our historical parallels between big banks today and big business more generally at the start of the twentieth century. In 1900, the forces supporting the status quo seemed unassailable, yet real reform proved possible – making the economic system both fairer and more productive. We can rein in huge banks today – but only if our political leadership is willing to take the most powerful people on the planet.
“Though Jamie Dimon won’t like this (any more than John D. Rockefeller did), incremental regulatory changes and populist rhetoric about “banksters” are getting us nowhere. It’s time for practical solutions. This might be a place to start.”
The full review is here.
The Baseline Scenario 
Through public awareness, there is a way to move the general consensus (something that may also be argued in your book).
Empirical evidence suggests the “general consensus” does not matter anymore.
Talking of reviews, I wondered how Simon and James respond to the review that was in last week’s The Economist?
Link to The Economist review
The conclusion:
The faith that Messrs Johnson and Kwak put in merely capping the size of banks is misplaced. The trouble is that such nuanced arguments would spoil the tale of villainy in “13 Bankers”. Their absence results in a book that is too crude to be convincing.
The Economist likes their banks too big to fail, apparently.
Yeah, they also have a piece praising Dodd’s bill:
http://www.economist.com/opinion/displaystory.cfm?story_id=15720366
They say:
“But many critics seem motivated by politics. On the left, some want banks cut down to size. That is unrealistic: reducing America’s biggest banks to truly innocuous dimensions would mean breaking them into 12 times as many constituent pieces.”
“Unrealistic”… Maybe… It’s unrealistic until we do it.
A monopoly of 20 versus a monopoly of 5. Yawn.
I guess many readers of the “Economist” are employees of TBTF banks, so I am not surprised to see some bias on this issue.
I stopped subscribing to the “Economist” when they published a piece attributing the huge pay packages at the big banks to scarcity of talent…
The Financial Times (which is “The Economist”‘s cousin) has nearly become a cheerleader for CDS. And before some simpleton brings up Wolfgang Munchau, one contrasting voice against 50+ laissez faire poser journalists/trader wannabes does not an objective editorial policy make.
For example Stacy-Marie Ishmael, who actually had the gall to write a largely copy and paste article reminding her readers that in fact credit default swaps didn’t meet the TECHNICAL definition of insurance. Exactly who did she think was confused about that??? Of course at the end of the article Miss Ishmael offers about 5 zillion FT links if you want to “research” it.
I would link to it, but I don’t want to reward that watered down version of “journalism”.
It’s far more realistic than thinking the rackets can be kept at this size and power but “regulated”.
That’s not just unrealistic but impossible. (Which is also, of course, the fallacy of this health racketeering bill.)
My sense is that the reviewer lumped 13 Bankers with Freefall for a reason – in order to group both under the topic of “government activism” in order to justify a label of naivete.
The reviewer uses an old rhetorical tactic – rather than arguing against the positions, argue they positions are incomplete, therefore naive, therefore inconsequential. I’ve argued for over a year that the TBTF message is incomplete – one of a handful of dominant memes. That does not justify dismissing it as faulty.
I think bungalow bill (above) has it right – the Economist editorial staff favors a “nuanced” approach that leaves the current architecture largely intact. The reviews are consistent with their anti-populist position.
Jamie Dimon has many more powerful friends than Mr Rockefeller ever had.
It’s still worth pushing for true reform that helps to remove economic rent from finance by chopping up the big banks, but don’t expect the same success as earlier reformers had against the industrial monopolists of the early 20th century.
From the review, the words of Teddy Roosevelt: “In 1911, we broke up Standard Oil. So what happened? The individual parts became more valuable than the whole.”
This is true in every breakup. Monopoly is not efficient, and certainly not an efficient way of producing either social values or shareholder value. AT&T was much more valuable broken into pieces than as a monopoly. Microsoft would be much more valuable as an operating systems company, an internet company, a media companey, etc., and when the courts seemed ready to break it up, I was prepared to buy large amounts of the company to get the pieces. But they didn’t break up, and are remain a monopolistic producer of absolute crap.
Broz, among others has made a persuasive case that the origins of the Federal Reserve — i.e., the primary incentives that led the last generation of oligarchs to voluntarily cede some of their power and freedom of action — were rooted in their private desire to make the $US acceptable as a medium for engaging in lucrative international investment and trade finance deals. Many historians have suggested that resistance to FDR’s efforts to advance social welfare and economic regulation was softened by the threat of “creeping communism,” which at that time still looked like a viable, self-sustaining, and thus truly threatening alternative model of economic organization. Perhaps the real problem today is the fact that there’s no external factor that is sufficiently *and disproportionately* compelling and/or threatening to today’s oligarchs to overcome their overwhelming and decisive preference for the status quo…
One more thing related to the shoddy “The Economist” book review. Simon, you and James should be quite honored “The Economist” gave you notice by your names. “The Economist” doesn’t even let their own writers put their names by the stories in their mag, so it must be quite an honor they would notice the authors who wrote “13 Bankers”. Or maybe they just don’t like any writing properly credited to a PERSON???
Exactly, as the part of healthcare reform with the most popular support of all – “the public option”, was exactly the part that did not make it through.
The job of a Republic is to represent either what is the will of the people or what is best for the people. Our Republic has ceased to do either on a reliable basis.
“motivated by politics” meaning “anything we don’t agree with”. If we agree with it, clearly it is motivated by “logic” not “politics”.
Curious how that works.
A monopoly of 20 has a harder time at regulator capture and at least has the benefit of being easier to rescue in a meltdown.
Interesting thought. Without a viable antipode there is no inclination to find the middle ground.
While I hardly long for the return of the Soviet Union, I have often thought it’s existence made us a better country, and frankly the world better, by having a strong rival who wouldn’t echo our talking points verbatim and brought some truth to power.
nice review. congrats to you both.
How can the US regulate the size of it’s banks, while international banks will have no such restrictions? Would US financial market share continue to erode, as international banks grow unfettered?
As I read this review it seems the Economist agrees with Simon and James but would prefer a more nuanced conclusion. Unfortunately, he neglects to mention what it is.
Perhaps he favors prayer?
Only until the international megabanks explode, which shouldn’t take long.
I stopped reading the Economist several years ago when the sonnet-like regularity of their writing — the logical pattern of their stories, no matter what — began to make me want to vomit.
The general formula is this:
1) So and so says this;
2) There may be something to what they say;
3) And yet they are too far to the LEFT/RIGHT;
4) Freemarkets;
5) Aren’t we clever? (Little joke)
It’s not so much an intellectual magazine, as an evening at the club, with a little too much bad red wine and a little too much salt.
James Pressley is correct and we are waiting until one of the biggest bank to fail. This will happen sooner or later if we don’t act now. They are too big to fail.
There is more to this story. As author Raymond Baker said,”Dirty Money is Capitalism’s Achilles heel”. Dirty money, along with secret bank accounts and derivative alchemy, prevents Capitalism from making a better world for all.