What the IMF Would Tell the United States, If It Could

From 1945 until around 1980, the financial sector was one industry among many in the United States. Then something happened.


People in finance started making more money,* jobs in finance became more desirable, financial institutions became more influential, and the linkages between the financial sector and the political establishment became stronger. At the same time that our financial sector became more leveraged and more risky, it also became more powerful. The result was a confluence of interests between Wall Street and Washington – one more normally found behind the scenes of emerging market crises, the kind the IMF is called on to resolve.

Simon and I tell this story – and the story of what happened next – in “The Quiet Coup,” an article in the May issue of The Atlantic. (Many thanks to The Atlantic for putting the online copy up as early as they did.) The working title of the article was, “What the IMF Would Tell the United States, If It Could.” Enjoy.

* The data in that chart are from Table 6.6 of the National Income and Product Accounts tables available from the Bureau of Economic Analysis.

Update: Henry Seggerman recently sent us an article he wrote in 2007, comparing the Korean crisis of 2007 to the then-current situation in the United States. He discusses not only the economic similarities, but also some of the political ones.

Update 2: A reader sent us an article about Mark Patterson, formerly Goldman’s chief lobbyist and now Tim Geithner’s chief of staff. Unfortunately, the article was published too late for us to use any of it in our Atlantic article.

By James Kwak

89 thoughts on “What the IMF Would Tell the United States, If It Could

  1. The chart graphic is almost un-readable.
    The text is dark grey over a black background.

    Is that existential humor?…

  2. Boy, Oliver Stone was prescient with “Wall Street” – right at the launching point of the trajectory.

  3. “The Quiet Coup” should be required reading for every American. And reread 10 times to let it sink in. Well done.

  4. I prefer Matt Taibi’s piece in the current Rolling Stones. He doesn’t mince his words, and calls it like it is: robbery.

  5. I read it, it was an interesting and broad analysis with a little too much historical content and a little light in the wrap up and on recommendations. Still, one of the best synopsis presentations out there.

    Tonight I am wondering if it is chicken-little, the sky is falling piece of theatrics. Based on the 20% rally in the S&P and financial stocks, either S. Johnson is right or the rest of the world is right.

  6. Thank you and MALTO BRAVO Simon!

    Simon and James, you are both heros, I pray for your continued courage and strength!

  7. Sorry, I posted and ran to a meeting without looking at the final product. Should be fixed now.

  8. I think this article is really, really important and I am glad you wrote it. This country is going to need both the righteous invective of a Taibbi and the sure tones of a veteran to have any chance to getting the right kinds of things to happen.

    You write, near the end: “But the U.S., of course, is the world’s most powerful nation, rich beyond measure…”

    As I know the authors are quite aware, a large part of “powerful”–besides printing the reserve currency–is the possession of a large, professional, battle-tested military capable of global force projection with finely gradated calibrations of use. I fear strongly that in coming years we are likely to also see that used to avoid the hard choices.

  9. Excellent piece Mr Johnson. I agree this should be required reading for all Americans, not least of all every member of Congress.

    Instead of better or worse I would say this makes an excellent companion to the Taibi piece. Both should be read.

    Charles C: Thanks for helping to highlight Simon’s point that Wall Street has managed to convince most Americans that what’s good for Wall Street is good for America…

  10. It takes more than one person to take back the country from the banksters!

  11. Powerful stuff. I am not so gloomy but needs doing anyway. Is there any evidence that shows that “Wall Street” is necessary for Main Street? How about FDIC insured banks with no allowed derivates or other exotica on the balance sheets as totally separate entities with no liabilities to any other entity (parent company), non-FIDC insured do what they like but government non-guarantee made clear to all, bank holding companies legal but no cross-liabilities, also enforce anti-trust as you say but extend to a financial product basis, e.g., maximum of any one type of interest limited to 5% of the notional market, and similarly for insurance companies. In the case of AIG, it seems as if the Financial Products Division brought down an otherwise sound insurance business. A little cryptic, but the concept is to produce solid traditional banks and insurance companies for the masses and let the oligarchs play in the casino.

  12. Hear-hear Mark Douma–

    There is a great lobby right now for us to concentrate on how to prevent disasters in the future, and this lobby pushes for the idea that you are an idiot if you want to look back– I believe this lobby is working very hard to prevent examination of what may have been the biggest scam in the history of the world.

    Even if we just start with the actions that were taken in September of 2008 on behalf of all of us, to “save the world” . Alot of time was spent on lobbying Congress for TARP–if this approach was not self serving, then why was Goldman at the top of the list of payees of 100% for their collateral? And why were all of the TARP 1 participants instructed not to lend (by treasury according to the CEO of USBancorp ( see http://www.twincities.com/allheadlines/ci_11722986 )

    while the public was told that increasing liquidity and lending was the reason for the secret TARP 1 money grab for the select 8 (9with Merrill))

    If we listen to the biggest lobby in the country, if we ask these questions, we are preventing progress. I say, if we don’t demand answers to those questions, the world will consider us a country of bufoons run by banksters–and our currency will be considered corrupt. Our country’s creditors might have patience wtih money printing for a greater good, but fraud will not be tolerated by our creditors. The recent declaration by the UN that the world should “ditch the US dollar” ( see http://www.reuters.com/article/email/idUSTRE52H2CY20090318 ) is evidence that now that Obama is blessing the paulson/bernake plan, there is little hope for the world to be able to depend upon the our country’s trustworthiness because we are forsaking the ideals for which our republic was formed.

  13. In terms of breaking up banks, I heard it suggested that we make the required capital reserve for a firm an ascending function of the size of the firm itself. The idea being that this would limit the size of firms more naturally than a breakup, because larger firms couldn’t use as much leverage. Large firms would either become less profitable(thus smaller) or more stable. Essentially, creating an inverse economy of scale in finance.

    What do you think about this idea? From my perspective, this sounds like quite an elegant solution.

  14. While I agree completely with your analysis, I am not at all sanguine about any of this. As the saying goes: The dogs may bark, but the caravan moves on.

  15. Simon, a question please. You say that “needing to squeeze someone, most emerging-market governments look first to ordinary working folk”, implying that this is against the advice of the IMF.

    But the IMF has been heavily criticized for doing just that. When a country goes to the IMF for help, the IMF insists that the government cuts services for the ordinary working folk. Romania appears to be the latest example, but there are may others. http://www.guardian.co.uk/business/2009/mar/25/romania-bailed-out-recession

    So, are there two different IMF’s at work in the world, the one you describe, squeezing the oligarchs, and the other one, squeezing the rabble?

  16. Does the increased disparity have to do with the demolition of other sectors, as much as the increased prominence of the financial sector ? The two are correlated, I believe.

  17. The americans will not learn, they will not change their ways, they will not do what is right, until the entire house of cards that is their economy is a burnt, and smoldering pile of waste ash. When the lights are no longer on, and the garbage is piling up, and the food store shelves are empty, and the kids are at home because the schools are closed…..then, and only then will they realize that never ending borrowing, and never ending theft, and never ending corruption has a price to pay at the end. Bad news Americans: Hillary went begging last week to china, hat in hand, for more loans. The chinese are going to do you all a favor. They said “NO”. So, Bernanke started the printing presses. Tell me Ben, did they have a class at Harvard that taught how to grow your country into an actual Banana Republic? I would like one of you Titans Of Finance over there in the U.S. to explain to us idiots out here in the world exactly how a country that contyrols 25% of global GDP can be not only broke, but tens of trillions of dollars in debt, when you are only 5% of population. How CAN that be? Oh, and by the way, thanks for screwing up THE ENTIRE GLOBAL ECONOMY. Yep, thanks a lot. Good stuff. The other 95% of the global population are very proud of you.

  18. Nothing will change in the U.S. financial arena until the Goldman-McKinsey & Co. family tree of bank, non-bank, dark pools, shadow banking, off shore machinery is dismantled. Additionally, there are many self-annointed blue bloods who insist that they are the only ones to control and lead, often euphemistically coined Masters of the Universe. This attitude along with the aforementioned encrusted circle of money power figures makes it very difficult for this rational and
    necessary voice of Simon Johnson to not only be heard but acted on.

    So here is my question: how does the individual investor who believes this Quiet Coup scenario is correct protect their funds and make any investment returns going forward without assuming a gambling mentality?

  19. Excellent article by Messrs Johnson and Kwak. Yes the IMF has not been a truly world organization, but as a prof Messrs Johnson and Kwak have the liberty to speak truth to power. The Wall Street debacle surely shows that who pays your salary (and bonuses) does not allow you to speak truth. I leave it that for the USA its best appears to be in the past. The corrupt political culture will see to that. Obama is your last hope.

  20. Please have mercy on America, people are rather helpless to the actions of the bank-machine system.

  21. Brian,

    Obama? He’s a politician too, remember? PLEASE tell me you are all NOT hanging your hat on the honesty and integrity of a politician from Chicago. Have you noticed that 1/3 of the AIG bailout dollars were funneled to the I-Bankers….at 100% of face value on their assets? Yeah, good luck with that whole “Obama is our savior” concept. Let us out here in the real world know how that works out for all of you in America. Remember this: we will NEVER forget what you idiots did over there in the U.S. You killed our economy too with YOUR nonsense and greed. Thanks again. PS: you can probably say goodbye to that whole “reserve currency” stuff pretty soon. We’re done with that nonsense too. Forrest Gump may have been correct: Stupid is, as stupid does. And you did “stupid” in spades. Thanks again America for grenading our economies too !!! WE’LL NEVER FORGET IT.

  22. Dear adios amigos,

    Would you ( speaking for the world) have felt more hopeful for the US if Obama had illuminated the improper actions (lehman, aig, tarp) taken in the fall on behalf of the banks, and properly and honestly addressed the banking issues, by looking into the black boxes and taking them by the horns?

  23. An excellent article. Thank you for your insights.

    Assume the US does not “grasp the nettle” of bank nationalization and the economy limps sideways. As other economies in Asia and Europe collapse the swap lines the Fed maintains with other central banks will be drawn down. How extensive are these? Is the Fed in the position of back stopping credit, literally, everywhere?

  24. Curious,
    I dont think any of us any longer care what you do over there in the U.S. Your government lies constantly, your rating agencies (who we all trusted) lied to us and we bought your toxic mortgage bonds ON GOOD FAITH, your citizens all seem to be asleep at the switch, and the proof is IT’S STILL GOING ON. You are teetering on the verge of collapse, and your bankers and politicians are debating the payroll for themselves. Are we all now supposed to take you seriously? Your dishonesty and outright greed has infected our lives, and we have had it with you. America needs to face the reality that every citizen can’t have a big house and a BMW. It’s just not how it works in the real world. Try saving some money for a change. Bulletin: savings is what creates REAL lending and real investment. Unfortunatly, you were borrowing OUR savings, and promptly squandering it on nonsense rather than increasing productive capacity. Nice play. We loan you trillions of our savings, on bogus investments I might add, and you all run out and buy new flat screen TV sets with the money. Did it ever dawn on any of you to perhaps build a few new effecient factories with that money? Maybe produce something that people may want to purchase? Newsflash America: You cannot compete in a truly global economy by “manufacturing” smoke and mirrors financial products and pedaling them to an unsuspecting global consumer. Tell me, which one of the Wall Street clowns thought that loaning money to people who could NEVER afford to repay the loan to maturity was a good and sound idea? And then, lets put a credit enhancement on the debt from a now insolvent insurance carrier, and pay off the rating agencies to mark it all “Investment Grade” paper. Thanks. We all really appreciate what you all did over there in the good old USA. Brilliant. WE WILL NEVER TRUST YOU AGAIN. NEVER. Why would we ever be that stupid again? Reserve Currency????? Your dreaming.

  25. Adios,
    It’s hard to argue with you when you are right, and you are right. We dropped the ball, and in grand style. And yes, the Rating Agencies were guilty of everything you described. No question about it. They lied, and we bought the bonds as well. So…..now what? That’s the real question….now what?

  26. Dear adios amigos,

    I hope you will find compassion in your heart for the fact that there is no possible way that each us citiizen is at fault for the things that you rightly condemn…it is completely horrifying to be living in a society where these thing about which you speak have and are happening, but most citizens are innocent and unable to do anything about the actions taken by the banks and politicians, and so many Americans do live upright and productively within their means. Please see us individually so you won’t hate us completely. My heart is broken to hear your words…i beg your mercy on behalf of the my fellow citizens. We are real people and we are not all corrupt, and living irresponsibly.

  27. Thank you for the most honest and concise assessment of the crisis so far in any news medium (available to me – american or european)!

  28. in what way is ‘government’ qualified to manage the situtaion – you’ve already pointed out its’ tight relationship with ‘Wall Street’

    and what are you/the IMF/government going to do about the banks’ clients

    “…The lack of information on the balance sheets of corporate borrowers is an important concern: The systemic risk emanating from corporations may be relatively small in countries where the domestic banking system has only limited exposure to the corporate sector… In more typical cases, however, claims on corporations represent large portions of bank bank’s balance sheets and the lack of data in this area is a serious shortcoming…” http://ftalphaville.ft.com/lib/data/filecache/attachment/w/p/wp02210.pdf

  29. What if McCain had been elected? Then the elites would have continued with more of their actions in secret.

    The 2006 book “Dark Ages America: The Final Phases of Empire” by Morris Berman lays out the path of decline. When in decline, the society chooses leaders which accelerate the decline. Bush and Cheney fit the bill on that one.

    What if their policies had continued?

    On the other hand, will Obama learn? His focus on big problems like education, health along with the economy may force him to go after the elite. But, his original choices have not been in that direction.

    As to the first point: what if the Republicans had won the election with their vapid messages?

  30. The Atlantic article is an excellent description of the problem.
    I have a minor suggestion on wording.
    You say that “What’s good for General Motors is good for the country” has been replaced by “What’s good for Wall Street is good for the country”. True enough, but by generalizing you have lost the punch of the original. I doubt if many would have remembered
    “What’s good for Detroit is good for the country”. A better paraphrase for today is “What’s good for Goldman Sachs is good for the country”.

  31. What about classic arbitrage? As I understand, buying and selling financial instruments more or less simultaneously in different markets provides guaranteed or virtually guaranteed profits for those with enough money to play. How large are these classic-arbitrage transactions?

    And what about the Tobin tax proposal?

    Why should we allow these guys to tie up the nation’s capital in the paper economy?

  32. Your analysis seems to be right “on the money”. The SEC, however is depicted as “asleep at the wheel” in yours an many other’s playbooks. While I agree that the net effectiveness of the SEC in preventing this meltdown could be characterized as such, that is not to say that the SEC has not been busy. They have been busy, ever so busy, piling on anyone’s public misfortune in the securities and insurance businesses in an attempt to look good politically, and to keep a cash flow going into the government through their agency, which some cabinet level pol probably thinks looks good. I am talking about preoccupation with such crisis as the Spitzer unveiled insurance rate fixing scam, and the AIG Greenberg ousting profit plumping scam. With the freight train coming it is noteworthy that the SEC stuck to tactics and topics that were safe politically.

    So it turns out that finance people doing credit default swaps were not the only ones picking up nickles in front of the steam roller. Even now, with all the major players in the Spitzer insurance fraud paying and moving on years ago, the SEC is shaking the dead animal. Let no nickle go unplucked.

  33. Interesting chart. There were at least two things that coincided with the rise in compensation on Wall Street that started circa 1980: Securitization; and the arrival of the quants.

    I don’t know the extent to which correlation implies causation, but it’s there. It might mean nothing.

  34. I loved this article – but can I just say, NOT good reading right before you go to bed. I tossed and turned all night and when I finally fell asleep I dreamed my entire family was working at Kentucky Fried Chicken. Not sure what that means, but i’ll take a Keynesian analysis of it rather than a Freudian one.

    One question, if the gov’t were to make the hard (and, I believe, RIGHT choice) and do a temporary nationalization of the banks through the fdic, who would be the “magicians” (tip of the hat to Paul Krugman’s column today) who would do the painstaking re-working and re-privatization of the banking system? Here’s my concern: as seemed to be established in Johnson and Kwak’s article, the government is saturated with the very oligarchs who landed us where we are now. Geithner, Summers, Bernanke – and the rest of the “best and brightest” connected through an umbilical cord to the banking conglomerates and now working for the government – how do THEY successfully de-construct and re-make this system? Who is our equivalent watchdog like the IMF to make sure these guys are taking the straight and narrow? Or is this where the pressure of the “taxpayer” must come in? If so, “the taxpayer” is a mighty beast to tame and with their opinions being influenced by propaganda machines like cnbc and the rest of wall street’s minions, how do WE get the word out?

  35. I just finished reading “The Quiet Coup” and wish to echo what Brian said – “this should be required reading for EVERY American”.

    This article is well written, easy for the average Jane to understand and provides answers to so many questions. Thank you for writing it and I look forward to learning more from the two of you in the future.

  36. Am I correct in understanding that this article essentially calls for the elimination of capital markets? That should be exciting!

  37. Fault? Do you think the rest of us out here CARE about fault? “Whos Fault is it”, is a typical American response to any crisis. We don’t give two craps about who’s “fault” this is. Whos “fault” it is doesn’t put my now crushed pension plans back in play. I can’t appease my wife and childrens anxiety by telling them who’s fault this was. ATTENTION AMERICA:IT’S YOUR FAULT. All of you. You all allowed your regulators and politicians to allow this to happen, because you allow them to do what ever they want, AND YOU DONT CARE. Your all too busy buying crap at Walmart and K-Mart, to actually care about what your actions are doing to the rest of us. YOUR government recently went over to the middle east, and promptly murdered tens of thousands of civilians, and none of you even blinked. Where are those WMD’s, huh? Now you’ve destroyed the worlds economy….whats next? Thanks again for destroying our retirement plans, and our childrens future SO YOU COULD BUY A BIGGER HOUSE. Why don’t you all do us a favor and jump off the top floor of the NY Stock Exchange….en masse.

  38. for the record we AMERICANS the regular folk have been fighting this tooth and nail.
    check out these sites
    i have personally engaged in the fight for our “so called leaders” to stop the madness and ENFORCE THE LAWS.
    i got crap in return. either ignored led on that something was actually being done.( call senator cantwell on that) or ridiculed. i have spent 2.5 years of my life doing nothing but fighting and calling and e-mailing and blogging and writing and trying to get those in power to realize what is happening.
    so please dont blame this on us regular folks.
    you want to place blame start with hedge funds,the s.e.c. and their lack of regulation, finra and their lack of regulation,blame john mack, dodd, franks, pelosi, schumer,jim chanos,jim cramer, just to name a few. the madoff exemption is another problem. why was the up tick rule repealed?
    someone wanted it gone. and look what happened.
    dont think i am the only one fighting either. there are literally tens of thousands of us fighting on a daily basis to stop this insanity.
    here read this recently published report

    Click to access 450.pdf

    the sec admits they ignored us.
    so please i understand you frustration and anger. it isnt the regular american it is the rich elite who are dictating what goes and what doesnt. focus your anger there.

  39. I can understand the anger of those who have been really hurt but to blame the citizens of the US or, indeed, any other ‘advanced’ nation misses the fact that almost without exception we all bought in to the financial culture sold to us by the rich and powerful.

    We all wanted to better our lives and it got out of hand. That’s nature.

    What one can truly hope for is that this period will finally sweep the excesses of the last 25? years away and we can rebuild our lives and our countries in a way that is more sympathetic with the values that the majority of citizens believe in. And those that have escaped harm must do their best to help those that have been hurt – social charity (small and large) is going to be incredibly important.

    Meanwhile, articles like The Quiet Coup and the growing group of far-sighted and rational commentators such as Simon, James and many others need the biggest audience possible – which is where every one of us matters. Technology gives us great power.

    The people of USA has always been capable of huge change in very short periods and are still a powerful force for good. I think we need the American people today more than ever.

    An Englishman.

  40. This was a truly amazing article, one of the best i’ve read in the last few years.

    I forwarded it to the White House. I hope Obama reads it.

  41. Americans,
    Your efforts to stop the financial madness resulted in….zero. Don’t you understand? These thieves that run your country dont give a damn about your screaming and “blogging”. It means nothing to the thieves. Nothing. What, your “talking” about them? Gee….they must be trembling in fear. Call me when millions of you decide to March, armed, into Washington. That is the only thing these criminals that run your government will respond to. But, by then it will be too late. Your financial markets will have been completely looted of any equity it had left, and the thieves will have bankrupted you. It’ll be a slow process, you’ll see. They’re laughing at all of you. They probably can’t believe you americans have let it go on as long as it has AND STILL IS. Amazing. Thanks again Americans for destroying our economy’s also. Our children thenk you too. Thanks a LOT. A-holes.

  42. No i don’t think everyone bought into it–no it is not nature–remember waste not want not?

    It was clear in the fall of 2008 that the AIG arrangement was to save certain investment banks, and then the lobby for total power to pass out 700billion dollars was striktly to help an oligarchy–many of the regional banks could have stepped in if allowed to do the banking and investment banking business of any one of the first TARP 1 participants, but to handle the situation this way would have meant letting decreasing the power of the oligarchy bankers. Not everyone bought into this…

    Who, in their right mind, would leverage all of their wealth 40x?

  43. Victims?

    I am the victim. I have been wroking in a sewer for the last nine years. I have been canning fish and saving metal shavings to buy my daughter shoes, and you tell me that you are the victin? Please American, go to the street and crap in your hat. Then put the fire out with your own face. After you have seen how your friends will react once you ask them to call the doctor then you will see how I can feel sorry for your pathetic ignorance. You need to pay the rest of the world with your wealth and start over at the bottom like we have. That is what you will experience to understand my reaction to your century of lies and deceit.

  44. Absolutely nothing should have been done during last September 2008. The banks should have been “allowed” or encouraged to fail. The financial system should have been allowed to collapse. Only in this way would the American tax payer benefit, because the general public would have been allowed to clearly SEE what bank lobbyists and their paid monkeys (the politicians) have done to this nation. As it is, by propping up the existing system, the ONLY ones that are benefiting from this are the pols and bankers that messed things up. Sure we, the American public, would have felt the pain of that collapse – a lot of pain. Still, that pain would have been immediate and would have resulted in real change. As it stands the propping up of the existing system ONLY delays the pain, makes it worse in the end (because of greater public debt) and deduces the opportunity to change the balance of power – as Simon & Kwak point out in their article.

  45. “From 1945 until around 1980, the financial sector was one industry among many in the United States. Then something happened.”

    What happened was the advent of free trade and globalization. As these had been run and pushed by the Wall Street, the financial services people had been exempt from the wage pressures when everyone else had to compete with $2 a day workers in Asia. No matter what we do with the financial system, until we put in place tariff and non-tariff trade restrictions, the situation can’t improve – right now, the “innovative financial products” were the only thing that we could export and which had been competitive internationally.

  46. Ronny,

    True, but you sold all of us non-americans junk. Garbage. Your financial “product” was nonsense that we all bought. We plugged it in, and it didn’t work. However, it wasn’t something that only cost a few thousand dollars. We trusted you, and bought into it, to only learn that we lost our life savings. And why? Greed. Lies. Corruption. The whole “F” you attitude that we have been observing from America for perhaps two generations now. Do you think this goes on forever? Will you be shocked when we, the other 95% of the global population, say “No,….”F” you”. Thats certainly where I am right now. I want to love you all, but you make that very difficult to do, in light of the fact that 30-odd years of my pension savings have now been wiped out. I’m in Norway, and we’re wondering what the hell you were all thinking over in the U.S. My pension fund bought into your mortgage deception….TOAST.

  47. I feel bad for you; however, your pension plan’s manager certainly should have diversified their investments and not have more than certain percentage in foreign mortgage related junk. To make it more even, I used to work for a Norwegian pharma company (you probably know which one), and the pension plan for its U.S. employees had been discontinued several years ago… And would you also offer some financial advice to a fellow Nordic nation (Iceland)?

  48. Ronny,
    I would suggest staying away from any future investments that involve America in any way, shape or form. They have proven, repeatedly, that they cannot be trusted. No hard feelings America, but you have worn out your welcome. Their never ending theft, dishonesty and greed seem to have played itself out. I, for one, have seen the light. Why would I EVER trust a group of people who’s “American Dream” seems to have proven itself out to be…..shopping? And shopping with other peoples money, I might add. They continue to borrow money they have no intention of repaying, and when the bill comes due, what do they do? Print cash, create inflation and wipe out their creditor. Did you notice that the INSTANT the Chinese told Hillary “No”, on more loans, they instantly started the printing presses? THE NEXT DAY THEY STARTED PRINTING CASH. That will kill the value of the American assets held by the Chinese. So, the Americans have proven who they really are. I plan to protect myself and my family an INSIST that any future investments I make are completely outside any American influence. I can’t afford to get wiped out again by their dishonesty, greed, theft and general malfeasance. I must protect my wife and kids from the Americans. I want my kids to have a future. I really prefer if my savings aren’t stolen AGAIN by some corrupt American scam to steal my pension savings. Call me demanding, but I would prefer if the American thieves don’t steal my savings AGAIN.

  49. A great article, but it doesn’t close the loop. Much emerging-market debt is owed to western banks, loaned to buy armaments and other often useless goods, involving bribes or fees to elites on both sides. The IMF serves the western banks by assuming this debt, with losses suffered by the citizenry of western countries who fund the IMF. Thus our banks are squeezing their own ordinary working people through the system, admittedly made more efficient by the IMF. Or am I missing something?

  50. Why are you saying he’s right? China and others made their own decisions to buy our paper – they weren’t forced. They wouldn’t have had savings to invest if we weren’t buying their plasma tvs and other manufactured stuff.

  51. Rah, what he’s saying is that adios’s allegations about the Rating Agencies lying is correct. You see, these overseas investors (and us, too) relied on the various investment grades/rating these so-called third party/disinterested agencies put on these bonds. And they did in fact rate this paper as investment grade, when in fact that was flatly not true. You see, these same rating agencies that were supposed to be independent, were in fact in the pocket of the investment banks – call it bribery. Understand that a LOT of pension funds rely on these ratings to make their investment decisions, and those ratings were wrong, deliberatly wrong. The investment banks made a fortune, and the pension funds tat bought this junk are now left holding the bag. The world now views this as having been done by design as well. Can you blame them for their anger? A lot of people (not in the U.S.) have been wiped out, and in their view, not one person has even been indicted. In fact, our government is now bailing out exactly these same companies and individuals who have perpetrated this massive fraud. Can you blame the citizens of the world for their furor? Their right. We screwed everybody…..on purpose, and by design.

  52. Excellent point Jonathan. The “oligarchy” they speak of here is the same group that STARTED the Federal Reserve, IMF, World Bank. You would have to be an idiot to recognize the oligarchy and then naively assume that Obama/Geitner/Bernanke have the ability to give a good fight to their own puppet masters.

    The only thing we can do is buy silver and gold. A revolt agains their paper money is the only thing that will hurt these people.

  53. We owe a huge debt to Simon Johnson for his frank description from inside the system. He didn’t point out, but of course it is evident, that the IMF was created as you say by the western elites (see today’s NYT article describing China challenging the western hegemony). Our oligarchs tasked the IMF with extracting as much money as possible from emerging market countries indebted through our complicity, which asp described in an earlier post, and replacement of incompetent avaricious oligarchs in those countries with more competent (and perhaps for a time more docile) new management, although of course we would work on the new management to run up more debt. Meanwhile, residual losses that our banks might incur are shifted to public monies. We are now maneuvering to shift up to a trillion more dollars to the IMF, another way to have the public pay for the disaster. The system is beautiful, and there is no reason it can’t endure; since at least the era of pyramid-building, there has been surplus for the elites to skim without engendering significant protest.

  54. Hi James & Simon, I took the liberty of translating your fantastic essay, as published in The Atlantic but in two parts (as it took me two days) into Spanish. Hopefully this small contribution helps in propelling the truth, the whole truth, and nothing but the truth about what needs to be done, and moreover: why.

    My heartfelt thanks for your essay.

  55. Mr. Amigos,

    Please lose the hate, mate! Intellectual mass murder won’t elucidate or fix anything in the long run.

    An extremist ideology at the root of the crisis stealthily embedded itself in the U.S. long ago. That ideology and its core proponents bear the blame.

    “”The Capitalist Threat” by George Soros
    Atlantic Monthly, Volume 279, No. 2, February 1997″

  56. Clearly, there is not one single cause for the changes that took place in and around 1980. It can be noted however, that the 1970s marked a major change in the curricula of American business schools, from a, perhaps mythical, concept of “professional management” with an underlying broad set of professional objectives to a focus on technical analysis using mathematical models with simple, usually financial, objective functions. In this way, we trained a new set of business managers

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