The cliché tells us that you can't judge a book by its cover. Agreed. But sometimes you can tell a lot about a book by the blurbs on its cover (and just inside the cover).
Such is the case with Simon Johnson and James Kwak's 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, this month's HuffPost Book Club pick. You know a book is onto something when, even in these politically polarized times, and dealing with a hot button issue like financial reform, it features side-by-side praise from both Jim Bunning and Alan Grayson. Yes, that Jim Bunning, who says that the book "makes it clear why ending 'too big to fail' and reforming the institutions that perpetuate it... are essential for our nation's future economic prosperity and, more fundamentally, our democratic system." Clearly, the need to reform our out-of-control financial system is not a right vs. left issue. (Full disclosure: I also did a blurb for the book).
The book is also incredibly timely, with the Senate gearing up for a floor debate on Sen. Dodd's financial reform bill when it returns from Easter break. While offering an in-depth explanation of the factors that led to the financial crisis -- a crisis Johnson and Kwak prove beyond any doubt is not over -- 13 Bankers has the immediacy and of-the-moment feel of a blog post, the sense that this is happening now.
So this is a perfect moment for the HuffPost community to read this book and engage in a discussion about the key question it raises: are we going to take the difficult steps necessary to avoid the next financial meltdown -- which Johnson and Kwak say is inevitable if we don't rein in Wall Street -- or are we going to continue to march to the drumbeat of an increasingly powerful financial sector that fills its coffers when times are good, and expects taxpayers to foot the bill and absorb its losses when the bubble bursts -- at which point it fills its coffers again? This, according to the authors, "is ultimately a question of politics -- whether the long march of Wall Street on Washington can be halted and reversed."
Johnson and Kwak offer a detailed and probing analysis of that long march. But before they do, they place it in a historical context, showing that the battle between concentrated financial power and the American democratic experiment is "as old as the republic." The key takeaway from this section is a powerful reminder that America has faced problems like the ones we are dealing with today more than once in our history -- from Thomas Jefferson to Andrew Jackson to the trust-busting of Teddy Roosevelt and the major banking reforms put in place by FDR in the wake of the Great Depression. The message is clear: we need a new Teddy Roosevelt to take on the modern equivalent of Standard Oil and J.P. Morgan.
The most powerful -- and frightening -- part of the book is Johnson and Kwak's breakdown of how, over the last 30 years, Wall Street has come to so thoroughly dominate American politics.
In some ways it's a familiar story -- a follow-the-money tale connecting the dots between massive campaign contributions, the inexorable move of Wall Street power players into positions of political power (and back again), the massive push for deregulation by both parties, and the subsequent rapacious -- and often fraudulent -- behavior that led to the 2008 meltdown. But Johnson and Kwak imbue their narrative with the details -- including a willingness to point fingers and name names -- that give the story freshness and urgency. And that will make your blood boil.
Consider: from 1974 to 2006 the average amount of money it took to get elected to the House went from $56,000 to $1,250,000. And the financial sector was front and center in this explosion -- it was the top contributor to political campaigns over the last two decades. According to 13 Bankers, from 1998 to 2008 "the financial sector spent $1.7 billion on campaign contributions and $3.4 billion on lobbying expenses." And the authors show that the money was targeted to where it would have the most effect: the campaign coffers of Senate Banking powerhouses like Phil Gramm, Alfonse D'Amato, Chris Dodd, and Chuck Schumer. Notice that the bankers' money rained down on both sides of the aisle. As Dick Durbin said of the banking lobby last April, "they frankly own the place." And, with financial reform on the agenda, the flow of money has only increased since then.
Just as important as the flow of money has been the flow of Wall Streeters into positions of power, traveling what the authors call the Wall Street-Washington Corridor. You know the names: Paulson, Rubin, Josh Bolten, Neel Kashkari -- the list goes on and on. "This constant flow of people from Wall Street to Washington and back," write Johnson and Kwak, "ensured that important decisions were made by officials who had absorbed the financial sector's view of the world and its perspective on government policy, and who often saw their future careers on Wall Street, not in Washington."
Johnson and Kwak make the point that the Wall Street takeover of Washington is far more complicated than a simple quid pro quo between donor and politician -- and, as a result, far more difficult to eradicate. It centers on the rise of what the authors call the Ideology of Finance: "Campaign contributions and the revolving door between the private sector and government service gave Wall Street banks influence in Washington, but their ultimate victory lay in shifting the conventional wisdom in their favor, to the point where their lobbyists' talking points seemed self-evident to congressmen and administration officials... because of [the banks'] ideological power, many of their battles were won in advance."
It's one thing for a powerful industry to be able to buy influence. It's another for that industry's agenda to become conventional wisdom -- across party lines.
"Politics is like sales," write Johnson and Kwak. "If you are trying to close a large deal with a major corporation, it helps to have friends on the inside, it helps to have buyers who see their fortunes aligned with yours, and it can even help to dangle the prospect of a high-paying job before the key decision-maker. But it is even better if the buyers really, independently want what you are selling. It is best of all if they believe that buying what you are selling is a symbol of their own judgment and sophistication -- that buying your product marks them as part of the informed elite."
With the ideology of finance becoming the default belief system of establishment Washington, the big banks have become a powerful and dangerous oligarchy -- one that has only gotten bigger and stronger and more profitable since the meltdown. Right after Obama's election, Rahm Emanuel famously declared: "Rule one: Never allow a crisis to go to waste. They are opportunities to do big things." But it is actually the very people who created the crisis that have taken advantage of it and done "big things."
"In the United States, we like to think that oligarchies are a problem that other countries have," write the authors. "But the fact that our American oligarchy operates not by bribery or blackmail, but by the soft power of access and ideology, makes it no less powerful. We have the most advanced political system in the world, but we also have its most advanced oligarchy."
The only way to combat the entrenched power of the big banks, Johnson and Kwak argue, is to follow the path of Teddy Roosevelt and break up the banks. In making their case, the authors quote Alan Greenspan, who tried to absolve himself of blame during his testimony today to the Financial Crisis Committee. In a speech in October, Greenspan, the oracle of free marketers and a long-time proponent of deregulation, said of the megabanks: "If they're too big to fail, they're too big... So I mean, radical things -- you know, break them up. In 1911, we broke up Standard Oil. So what happened? The individual parts became more valuable than the whole. Maybe that's what we need."
13 Bankers convincingly argues that breaking up the big banks is essential to avoiding another cycle of heady boom followed by devastating bust. Unfortunately, while the Obama administration is giving lip service to too-big-to-fail issues, actually ending too-big-to-fail is not currently on the table in Washington. But it needs to be placed there. And forcefully.
I'm told that lots of copies of 13 Bankers are making their way around Capitol Hill. Even Chris Dodd told Don Imus that he is reading it. This could be the rare book than can actually have an impact on the vital debate happening right now in Washington.
In the face of public pressure, the White House took a stronger position on financial consumer protection than it might otherwise have done. The same pressure needs to be applied when it comes to the megabanks.
Reading 13 Bankers -- and joining in our month-long discussion about it -- is a good place to start. And be sure to read Simon Johnson and James Kawk's first blog post about the book, coming tomorrow.