13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

I bought this book on the basis of having seen one of the author's (Simon Johnson) on Bloomberg a couple of times, where the book was mentioned. Johnson's clear analysis of the current financial crisis in these interviews and the fact that he has not bought into the current idea that everything is rosy in the world again made after 60 weeks of the US stock markets rising with few signs of rest.Johnson is a former chief economist at the International Monetary Fund and currently Professor of Entrepreneurship at MIT. His co-author, James Kwak is a ex-McKinsey & Co. consultant.The book is divided into 7 chapters and a full introduction, together with 50 pages of detailed notes (linked to footnotes in text) and a useful set of blog links on the subject together with recommended further reading.The first chapter takes us back to the Founding Fathers and highlights the early differences of thinking between Thomas Jefferson and Alexander Hamilton when serving under President George Washington in the late eighteenth century. It highlights the essential tension between those who believe in the need for a strong central bank and those who would rather do without such an institution. This sets the stage for the debate and battles between those who believe that a central Federal bank is essential to the smooth workings of the US economy and those who counter that this can lead to an abuse of power. The debate is still very much alive today, even more so in the aftermath of the recent economic contraction.The book does not focus simply upon the USA. It then ranges to consider the events in Asia during the late 1990s with the currency and econonomic crises that swept through the region and engulfed Russia and South America, together with Long Term Capital Management (LTCM) on Wall Street. Ironically, the kinds of advice given by the IMF and implicitly the USA to the Asian emerging economies regarding their crises centred upon a set of policies which the USA totally ignored when their own crisis hit in 2007-2009. This is well analysed in the book.The third chapter is entitled "Wall Street Rising: 1908-" and shows how the philosophical and institutional economic as well as political conditions established as a result of the Great Depression (e.g. Glass-Steagall Act [Banking Act 1933]) together with numerous other legislative safeguards were challenged and unravelled from the era of Reagan onwards. In particular, it highlights the moves made by influential players for Wall Street in New York and Washington that created the extreme 'laissez-faire' environment of the late 1990s and early 2000s. One of the most significant factors being the unfettered explosion of the derivatives market, which Chairman Alan Greenspan at the Fed, along with Robert Rubin and Larry Summers at the US Treasury considered outside their area of concern. Essentially, the viewpoint from Washington seeming to be that what is good for Wall Street is good for the country. A poignant issue, given the policies followed by Greenspan's successor, Ben Bernanke; whilst Larry Summers once again has the ear of the President.The last three chapters of the book look very closely at the increasing power of Wall Street banks during the past decade. The growing power of Wall Street not only considers the influence that they have in Washington with legislators, but at the consequences of the 'Too Big to Fail' policy pursued by Hank Paulon, Ben Bernanke and Tim Geithner at the height of the crisis in 2008 when it looked as if Merrill Lynch, Countrywide, Fannie and Freddie were just the beginning of the end, as Lehman Brothers fell and AIG sought assistance from imminent melt-down. The short selling pressure on Goldman Sachs and Morgan Stanley, together with Bank of America, Citibank and Wells Fargo made the prospect of such a major catastophe very real. However, the deal arranged by the Fed and Treasury was very different to what even Wall Street expected in terms of its generousity and terms. This section of the book helps one understand exactly why the survivors of the melt-down in 2009 bounced back so quickly and strongly in the following year. It also underlines the fact that the policy has now created an even more concentrated industry amongst the major banks effectively making a mockery of the 'Too Big to Fail' mantra.The book was published in early 2010 and therefore acknowledges the Obama administration's intent to reform the financial system in the States. However, it points to the unlikeliness of this happening, given the even greater power of Wall Street - post the crisis. In light of this potential outcome it concludes that the ingredients and attitudes central to the financial crisis are still very much in place and that it will simply be a matter of time before another one hits. The alternative suggested by the authors returns one to the opening chapter's commentary about the ideological battle between those who would support the tenets of Jefferson and those representing the views of Hamilton. The issue is whether Obama will actively pick up the gauntlet to return to the work started by Theodore Roosevelt in the early part of the last century and continued through the post Great Depression legislation introduced on Franklin D Roosevelt's watch: this was one of healthy scepticism for concentrated economic power as reflected in the anti-trust legislation at the time.Anyone interested to consider an analysis of 'what went wrong' in the lead up to the financial crisis, which goes beyond the more obvious consideration of an unregulated multi-trillon dollar global derivatives market should read this book. The historical analysis highlights that the crisis was of course partly down to market conditions, but more importantly, it provides the reader with an appreciation that the philosophical economic and political arguments about the nature and abuse of power in industrial concentration is central to these events. The style of writing is clear and quite journalistic in nature; however, this is a strength in that it makes the content more accessible to a wider audience. However, this is not a book for light reading. The analysis (in particular the accompanying notes) is detailed and to fully appreciate the work requires more than one careful read: but it's worth it.My only criticism of the hardcover version of this book is the actual cover. It appears to have been printed with an external finish which feels quite uncomfortable to the touch and reminded me of those experiences when someone drags their nails over a blackboard! Of course, one can ditch the cover after purchase.

This is a very useful book on the causes of the current slump. Johnson and Kwak focus on the role played by the 13 leading bankers who dominate Wall Street.Between 1998 and 2008, Wall Street spent $1.7 billion on election campaigns and $3.4 billion on lobbying. Its people moved into Washington. Its ideology that a large finance sector was vital for the USA became all too widely accepted. As a US Senator said, "the banks ... frankly own the place."Yet, as the authors point out, finance is a rent-seeking activity, shifting wealth, not creating it. Finance, at best, assists wealth creation, not destroys it.So in the crisis, the bankers blackmail us - pay up or we go under, dragging you all down with us. Their mantra is - socialise losses, privatise gains. The governments give the banks whatever they want, instead of writing down the banks' debts. So we the taxpayers have been made to give the bankers blank cheques, up to $23.7 trillion. The slogan is `save the economy'; the reality is saving the banks, the bankers and the bankers' bonuses.These guarantees (subsidies) allow the biggest banks to borrow more cheaply than their rivals, so they grow even bigger. But this is to go the wrong way. As the authors state, "The right solution is obvious: do not allow financial institutions to be too big to fail; break up the ones that are." Even Alan Greenspan, Chairman of the Federal Reserve, said, "If they're too big to fail, they're too big." And these bailouts allow the bankers to take ever-bigger risks, which will cause the next crisis.As Johnson and Kwak conclude, "With the same conditions in place that led to the last financial crisis, it would be folly to expect any other result." One sign of madness is to do the same thing and expect a different result.Are people going to allow yet another crunch, causing an even worse slump? We need to defeat this financial oligarchy before it ruins us all.

This intriguing study concludes that for all the talk of a new world order after the devastating 2007-2009 financial collapse, Wall Street looks remarkably the same. Money and power are concentrated in fewer hands, but the Street's fundamental philosophy, favoring light regulation and markets dominated by a few huge banks, survives. In this eye-opening account, former chief economist of the International Monetary Fund (IMF) Simon Johnson and former McKinsey & Co. consultant James Kwak argue that Wall Street has gotten what it wants for too long, and that the time has come to break up big banks. While the authors cover oft-trod turf, their novel premise that the government must break up the big banks counters conventional wisdom. getAbstract recommends this book to taxpayers and policy makers seeking insight into how Wall Street works.