By Simon Johnson, co-author of 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown
Frank Luntz is the midst of making one of the great mistakes of modern American politics. He seems to have completely missed the change in plot line on financial reform over the past few months – ever since Ted Kaufman waded into the fray, started to bring other key figures with him, and really moved mainstream thinking (as manifest, for example, in the Goldman Sachs hearing this week).
This is about the “arc of the fraud”. The financial system committed fraud during the boom (liar loans and misrepresentation to customers of all kinds); fraud during the bailout (“if you ruffle our feathers, we will collapse”); and now fraud during the serious attempts at reform (e.g., the astroturf/fake grassroots nonsense.)
Luntz thinks this is about higher costs being passed on to consumers and wants to fight in November on “the Democrats are just about special interests”. That would be terrific – for the Democrats – and Mr. Luntz should be encouraged in this endeavor.
Mr. Luntz insists that it is not about what you say, but about what you hear. I couldn’t agree more – this is readily apparent as I travel the country talking to many people about fixing the financial system and what we need to do going forward.
This is what people hear: “fraud”. They understand that our biggest banks and other financial players have become too big and too powerful. They know these people need to be reined in and they also realize this is going to be a heck of a fight – most likely over many years. They understand that Wall Street took over Washington and has run it, in large part, for too long – this is the central point of 13 Bankers; if anything, readers now find this rather obvious.
Some of this fraud will go unpunished, because our legal system fell behind the curve – and because the people at the heart of these frauds are very smart. But this just means we need to try harder and for longer to reform our system.
Of course we won’t get this all done in this legislative cycle – everyone gets this. But that is not a message of despair and defeat – it is a call to defiance and determination.
If you think Mr. Luntz can credibly present himself as the defender of us all against narrow special interests, you should be worried. If instead regard his position as untenable under pressure, do all you can to encourage this approach.
Just don’t send him a copy of 13 Bankers – we really do not want him to figure out what is going on.