Finances Critical Book Reviews "America's Oligarchy" Johnson,Book Review

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Finances

Critical Book Reviews

"America's Oligarchy"

Johnson, Simon., & Kwak, James. (2010). The wall street takeover and the next financial Meltdown. New York: Pantheon Books.

Paperback: $15.95

ISBN: 030747660X

Knopf Doubleday Publishing Group

Simon Johnson is one of the most frequently cited economists of the 21st century and was considered a "go to guy" during the recent economic meltdown. Simon Johnson, previously the chief economist of the International Monetary Fund, Professor of Entrepreneurship at MIT, and author of the controversial "The Quiet Coup."

Johnson and Kwak's, "The Wall Street Takeover and the Next Financial Meltdown" asserts that Washington has and will accede to the vested interests of an unbridled financial sector that runs up profits in good years and dumps its losses on taxpayers in lean years. Moreover, without genuine reform through stringent regulation of the banking system as first and foremost an engine of economic growth, the country and the global economy are positioned for another financial meltdown" (231 ). Johnson and Kwak suggest, "…reconfigure the megabanks so they will be small enough to fail" (6). Any contemporary economy needs a financial system to process payments as well as to transform savings in one part of the economy into productive investment opportunities in another part of the economy.

But the past three presidents have made the determination they need this financial system; one that is dominated by 13 bankers. With the highly potent and combustible mix of exotic mortgages and complex derivatives these 13 banks grew to a level that their failure threatened to destabilize the entire financial system, and dare say egregiously impact the global economy; providing insurmountable leverage against, with and over the government. The minimal impact the governments regulatory controls had on the financial engines of the 13 proved almost laughable in the face of the monumental bonuses issued to major stakeholders, namely the CEO's and upper echelon of the companies within months of gubernatorial bailout.

There is no wonder, however, that this situation came to pass. For the past 30 plus years, financial institution money has been lining the campaign coffers and war chest of congressional representatives and investment bankers wrangled top positions within the White House's administrations and the Treasury. In essence, before the Wall Street bankers came to the proverbial fight, they had already won. The post-Depression regulatory system was designed to force disclosure of publicly relevant financial information; established limits on the use of leverage; drew bright lines between different kinds of financial activity and protected regulated commercial banking from investment bank-style risk taking; enforced meaningful limits on economic concentration, especially in the banking sector; provided meaningful consumer protections and contained the financial sector so that it remained subordinate to the real economy (Weisman & Donohue, 2009). Needless to say, the post Depression regulatory system was "hodge podge" at best and failed to effectively deliver on its promises.

The impact and undeniable message the bailouts and the political / financial "friendships" provided to the American people and the global economy as a whole is that the government "chose to stick with the bankers it had" (Johnson & Kwak, 2010). The message is clear and straightforward: "When times are good, the banks keep the upside as executive and trader compensation; when times are bad and potential crisis looms, the government picks up the bill" (12). Little to no consideration was given to choosing another option, a different financial structure, and real regulation, considering that both the Bush and new Obama administrations were heavy with high ranking administration officials that came from Wall Street. "Reform was put off until after the most powerful banks had grown even bigger, returned to profitability, and regained their political clout" (11).

Johnson and Kwak maintain that the current government saving of overly powerful financial institutions is not a new phenomenon in the history of American economics. Thomas Jefferson faced a similar situation with the financial aristocracy. Jefferson lamented in his 1801 State of the Union Address, "Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions" (Cherry, 1998). The nation's 7th president, Andrew Jackson was equally distrustful of banks, and his secretary Nicholas Trist echoed Jackson and Jefferson's sentiment when he wrote, "Independently of its misdeeds, the mere power, - the bare existence of such a power -- is a thing irreconcilable with the nature and spirit of our institutions" (Sears, 1924).

Oligarchy, government by the few, is what Johnson and Kwak purport has been America's system and will continue to be so in the future; positioning the country for yet another financial meltdown. "The Wall Street Banks are the new American Oligarchy -- a group that gains political power because of its economic power, and then uses that political power for its own benefit" (6).

"The Wall Street Takeover and the Next Financial Meltdown" fits well within the context of the larger academic discipline in that it provides insight into the current system of public administration; offers structural reference points to assess and learn from; and affords opportunity for critical review. Johnson's background, in particular, bespeaks his argument. He is not looking at the financial crisis as an abject third party, but as someone who was in the fray as it occurred. This makes Johnson's and Kwak's arguments relevant, pertinent, and worthy of heeding. Anyone interested in historical and contemporary governance and public administration would benefit from reading this book. Moreover, those interested in international relations, the global economy, and consumers in general can greatly benefit from the review of this book; both from a professional and personal perspective.

Not only is the historical information and parallels outlined in the book relevant and important, the comparison and contrast to modern day governance provides valuable information as to America's system of governance and the power the financial system has to effectually thwart, influence, and control it. Readers of this book can use it in a variety of ways; as a history lesson, financial guide, and a contemporary review of public administration.

Sorkin, Andrew Ross. (2009). Too big to fail. New York: Viking.

Paperback: $18.00

ISBN: 0143118242

Penguin Books

Andrew Sorkin is an award winning chief merger and acquisitions reporter. He is a columnist for the New York Times; editor and founder of Dealbook, which is an online financial report. He was recently named by the World Economic Forum a Young Global Leader.

In Sorkin's book "Too Big to Fail: the inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves" he recaps more than five hundred hours of interview with some two hundred individuals who were directly involved in the events surrounding the financial crisis; including management teams, current and former U.S. government officials, foreign government officials, Wall Street chief executives, lawyers, consultants, advisers, and more. Sorkin and Johnson & Kwak have this premise in common as Johnson and Kwak's book also have a chapter, "Too Big to Fail." For Sorkin, the term too big to fail is defined as the "receipt of discretionary government support by a bank's uninsured creditors who are not automatically entitled to government support" (foreword). Sorkin describes the "new interconnectedness among the nation's financial institutions" as posing the greatest risk to the American economy. He speaks of the Cassandra's -- warners -- in both the academic and business arenas that tried to tell anyone who was listening that this new fangled financial engineering was destined to end badly.

Those on the inside, able to wield and deal seemingly without conscious is echoed by Foster and Holleman in their article "The Financial Power Elite," when they describe a whole "new era of financial conglomerates" arising along with the onset of the Great Financial Crisis in 2007. These financial conglomerates and insiders in the financial crisis as described by Sorkin, were interested primarily in self-protection, and if there was a positive benefit to the economy or the American consumer, then that benefit was ancillary and not primary.

Sorkin's book really speaks to the nation's infatuation with the "players"; the Wall Street bankers and traders that were primary in this process. In William Cohan's editorial, "The Power of Failure," he addresses that curiosity and infatuation. "We continue to shower them with riches, prestige and glory. We make movies about them and write books about them. The question is why?" Sorkin highlights and Cohan outlines that we tolerate their questionable behavior and morality, and continue to put up with Wall Street's financial calamities (Cohan, 19). The country and the government have gotten to such a place where the banks are too big to fail. With the primary players treated as rock stars instead of real financial engineers who shoulder the responsibilities for their behaviors and actions, they too have been positioned and supported in not failing.

Sorkin has a solid background as a long time observer of Wall Street and the people who comprise the inner workings of… [END OF PREVIEW]

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