Johnson of MIT sees another financial crisis coming
Q: Will the bill prevent a future crisis?
Johnson: It definitely doesn't prevent a repeat or the likely next version. It has some measures that address part of what happened in the past, and that's OK, but it's nowhere near enough.
Q: If you could fix one thing about the bill?
A: It didn't tackle the heart of the matter, which is that the biggest banks have become too big to fail. ... All of these banks feel that they're immune from the consequences of failure.
Q: The Obama administration doesn't agree.
A: I've given 60 presentations to various kinds of audiences and I find a huge amount of agreement and consensus across the left and the right and the center. You are hard pressed to find someone who is not closely aligned with the administration who would disagree with that proposition.
Q: So why no action?
A: It's the money. They're afraid of what would happen with campaign contributions if they were to go very strongly against the big banks.
Rogoff's comments about the country's "shift to the left", although an aside, is annoying, taking into consideration a disproportionate share of deficit spending goes directly to the military, and lately bank bailouts. The dude always focuses on social programs and ignores the anti-social programs of military spending. His input is valuable, but he lacks perspective.
Simon Johnson, on the other hand, obviously gets out more. (of the country, that is) He is also much more hip to the moral hazards created by a govt that passes bills like the one passed today, "cracking down" on derivatives, if I'm correct. Must have been real tough on the big banks. Their share prices rose 3%.
I've linked to the article below a couple of times already, but it deserves another link for anyone who hasn't read it already.
Simon Johnson--The Quiet Coup, May 2009:
"The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials—from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere—trudging to the fund when circumstances were dire and all else had failed."
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