Policymakers continue to hold bankers in awe, in spite of the damage wrought by the financial crisis.
To find out what is really going on in America it helps to follow the foreign press, especially now that the mainstream media has devolved into a multi-channel platform for corporate-sponsored propaganda and government spin. And when it comes to matters economic, there is no better source of information than the Financial Times in the UK.
As part of its ongoing series on the Future of Investing, the FT recently ran an editorial package that focused on regulatory reform of the financial industry.
Various FT writers covered all angles of this important story - from bank capital requirements, risk management practices and investor protection to government bailouts and "moral hazard," how to wind down institutions deemed to big to fail and the inherent conflict in housing commercial and investment banking under one roof.
Unlike their counterparts across the pond the international writers were not preoccupied with the secondary issue of bankers' pay, which seems to dominate media coverage here.
FT contributors delve head-on into a topic that up until now has pretty much been taboo in the US press - namely Wall Street's magisterial influence on Capitol Hill, which is rivaled only by that of the military-industrial complex.
Other than RollingStone - which painted a not very flattering picture of the revolving door between Goldman Sachs, the US Treasury and Federal Reserve - domestic coverage of financial industry reform has predominately focused on solons' concern over bankers' outsized pay packages. What is missing is insight into Wall Street's monopoly on the legislative agenda in Washington.
For that we have to turn to the FT.
John Plender, in a piece on regulatory reform titled "How to tame the animal spirits," warns: "As the shock of the Lehman Brothers collapse a year ago retreats further from public consciousness, some experts fear that a once-in-a-lifetime chance to put to rights the system of controls and strengthen investor protection is slipping away."
The problem, as Plender and others such as FT columnist John Kay point out, is that any reforms "focused on the needs of consumers" at the expense of "the promotion of products and remuneration of producers" will be "violently opposed by the big banks, whose lobbying clout is legendary." Continuing, Plender notes that Simon Johnson, former chief economist at the International Monetary fund, "said in recent testimony on Capitol Hill that the culture of deference towards the financial sector in a Washington heavily infiltrated by former investment bankers is similar to the emergence of financial oligarchies in emerging markets."
Plender cuts to the chase in a sidebar to the main article.
One congresssman, five finance lobbyists
Efforts by governments and regulators to improve investor protection by curbing what big banks and the like can do will run into resistance from a financial sector whose lobbying clout is strong.
Notably in the US, that power derives primarily from its deep pockets.
Between 1998 and 2008, Wall Street investment banks, commercial banks, hedge funds, real estate companies and insurance conglomerates paid an estimated $1.7bn in political contributions and spent a further $3.4bn on lobbyists. The figure comes from a report by Essential Information and The Consumer Education Foundation, two non-profit organisations. Their research shows that in 2007 the financial sector employed nearly 3,000 lobbyists, or five for each member of Congress, to influence policymaking.
Such purchasing of political influence is widely believed to have helped secure for Wall Street the repeal of the Glass-Steagall Act, which prohibited the merger of commercial and investment banks, and the blocking by Bill Clinton’s administration of a Commodity Futures Trading Commission initiative to regulate financial derivatives.
"Over the past 30 years, this sector has benefited from a process of ‘cultural capture’, through which regulators, politicians and independent analysts became convinced this sector had great and stabilising technical expertise," says Simon Johnson, former chief economist at the International Monetary Fund. "Big banks are, amazingly, still presumed by officials to have the expertise necessary to manage their own risks, to prevent systematic failure and to guide public policy."
In a separate commentary elsewhere in the paper, Plender returns to the "culture of deference" theme: "Even today, many policymakers in the (Anglo-Saxon) countries continue to hold bankers in awe, in spite of the damage wrought by the financial crisis."
Finally, FT associate editor and chief economics commentator Martin Wolf said he doubts "the financial system now emerging from the crisis is safer, or better at servicing the public's needs."
As for "how to remedy this dire situation," Wolf concludes: "The most important point is that where we are now is intolerable. Today’s concentrations of state-insured private wealth and power must surely go. At present, the official sector believes tighter regulation, particularly higher capital requirements, can contain these risks. But this is likely to fail...the financial system is so inherently fragile that radical reform cannot be pronounced dead."
If you thought health-care reform was tough, you ain't seen nothin' yet. Big banks and their well-healed lobbyists will fight tooth and nail to restore "business as usual" and sky-high profits.
What, then, can progessives do to neutralize the "culture of deference in Washington" and give "radical reform" a fighting chance? Here is a three-point plan that combines advocacy and fun.
- Run, don't walk, to see Michael Moore's "Capitalism: A Love Story," which opens nationwide tomorrow
- Jam congressional in-boxes with email letters in support of a financial-transaction tax (see diary United We Stand)
- Organize anti-bailout tailgate parties across the country demanding citizen "death panels" for too-big-to-fail banks
If you have any other ideas, we'd love to hear them. After all, isn't economic justice something worth fighting for?