James Kwak extends Michael Lewis’s point and feeds my fascination with apocalyptic hysteria and helpless torpor as the twin markers of American politics these days. He makes it believable that the angry Tea Party wackitude in the far countryside and the smug sleepiness inside the Beltway and the media mainstream are both symptoms of the same “quiet coup” that James Kwak and his writing partner Simon Johnson diagnosed in The Atlantic last Spring.
To Simon Johnson, former chief economist at the International Monetary Fund and now professor of entrepreneurship at MIT, the deeper condition of the American republic looks all too familiar. The essential problem — easily recognizable if we were looking at, say, Thailand or Korea or Russia — is known in the trade as “state capture,” meaning the accretion of overwhelming political power by a financial elite, an oligarchy, known in our case as Wall Street, or in the title of the riveting analysis by Johnson and Kwak, Thirteen Bankers. The idea of “capture” extends by now past the political parties, Congress and the controlling agencies of the executive branch. James Kwak, in conversation, quips that “capture” encompasses “media capture,” too, and “ideology capture.” And the same oligarchy seems to be working its will in foreign as well as domestic misadventures:
JK: One of the parallels between the financial crisis and the Iraq War is that despite all the things that have gone wrong we still have largely the same people. We see the same people on TV, the same people in Congress telling us how we should understand the crisis and what we should do next. And during the Bush Administration people were saying, “Why didn’t anyone get fired for the Iraq War?” And the same question applies now: Why hasn’t anyone been fired because of the financial crisis?
I think there’s another parallel as well, which is that, again, the cover-up that’s going on by Wall Street today is this idea that the financial crisis was an accident, that it was a lot of people making mistakes—it was lenders making bad lending decisions, and homebuyers making bad borrowing decisions, and rating agencies making bad decisions when they rated these toxic securities, and unbelievably these investment banks holding onto their own toxic assets, and then regulators being asleep at the switch.
CL: Perfect storm.
JK: Yes, exactly. It’s the perfect storm theory. And what they’re trying to do is they’re trying to analogize the financial crisis to a natural disaster. How do you blame someone for a natural disaster? And you hear the same language from the Administration. You hear Timothy Geithner saying, “Well, do we want to protect against a hundred-year flood or a 30-year flood?”
I think this is all deeply wrong, and it’s an exact parallel to the Iraq War. Because you know, as we all remember, we invaded Iraq, we didn’t find Weapons of Mass Destruction, and what did people say? They said, “Oh, it was bad intelligence.” So people gathering the intelligence made mistakes, people analyzing the intelligence made mistakes, people brought the intelligence to President Bush and Vice President Cheney and they made an error of judgment because of the bad intelligence, and then a majority of the Congress went and voted for this war because they had been misled. It’s the same idea. It’s the same idea that it’s all an accident, it’s not our fault, it’s somebody else’s fault and it was just a big mistake. And in both cases that is just fundamentally wrong. I mean, we invaded Iraq because our political leaders wanted to invade Iraq, and our Congress voted for it because they did not want to be seen as voting against a war in the run-up to an election, and that’s all there is to it.
And with the financial crisis: I’m not saying that bankers wanted the financial crisis, but they engineered it. They engineered a climate of deregulation and non-regulation that allowed them to invent whatever products they wanted to, sell them to anyone they wanted to, increase their leverage so that they could make larger and larger profits, and they engineered that consciously. This was the product of intention, and it was bound to blow up. And it finally blew up. And that is the message that Wall Street does not want people to hear. They want people to think it was all a colossal mistake made by well-meaning people who had mistakes in their models. That is not what happened.
James Kwak in conversation with Chris Lydon in Boston, April 12, 2010.