By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown
The ideology of unfettered finance is crumbling. Whatever you think of the merits of the Goldman case from a legal or short-term perspective, the SEC’s allegation – and Goldman’s response – have further moved the mainstream consensus away from “finance is generally good” to “big banks are frequently scary.”
Senator Ted Kaufman should get a great deal of credit for his well timed charge on this issue – as I argue in BusinessWeek/Bloomberg. But Lloyd Blankfein also gets an inadvertent assist, quoted in the Financial Times yesterday as saying that the SEC case against Goldman would “hurt America.”
Mr. Blankfein is starting to sound – and act – a lot like Nicolas Biddle, head of the Second Bank of the United States (by far the most powerful commercial bank of the day), during his confrontation with President Andrew Jackson in the early 1830s.
When Jackson first challenged the Second Bank, many people thought his concerns about the bank’s powers were excessive. But then Biddle started to fight back, spending money freely to buy congressional affection (and even leading orators) and attempting to contract credit in order to demonstrate that Jackson was hurting America.
At that point, people understood that Jackson was essentially right. The Second Bank had become so powerful that it could challenge elected executive authority and, if Biddle won, the consequences for democracy would be dire.
We are now in the phase when the most dangerous of our banks – and the people behind them – will go to any lengths to distort the realities and completely mislead people. The only way to deal with this is to do what Andrew Jackson would have done – attack, in no uncertain terms, misrepresentation wherever we find it.
Some friends of ours produced an ad yesterday, which is now on YouTube, which cuts direct to the heart of the matter. Review it and, if you agree with the message, send it to others. Tell them to pass it on – and urge them also to understand why they should call their Senators and the Senate Democratic leadership and insist – firmly but politely – that the Brown-Kaufman SAFE banking act should receive an up-or-down vote on the Senate floor (my post on that issue, from yesterday, has been updated with a link to make these calls easier for everyone).
We should now view Goldman Sachs and our other five megabanks in the same terms that Andrew Jackson’s secretary used for the Second Bank of the United States, “Independently of its misdeeds, the mere power, – the bare existence of such a power – is a thing irreconcilable with the nature and spirit of our institutions” (see p.19 of 13 Bankers).