In 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, Simon Johnson and James Kwak point out that in September 2008 the high-flying masters of the universe were at their weakest point and had no choice but to do whatever the government demanded of them. Never mind the supreme irony of Wall Street bankers who claimed government had no place interfering in the miracles of the market begging the government to save them, it was at that time when we should have cut them down to size.
Instead, with Treasury Secretary (and former Goldman Sachs CEO) Henry Paulson leading the way, the Bush Administration and the Congress, facing the extortionist threats that they must cough up the money or watch a Great Depression, decided to give the biggest financial services corporations in the world what amounted to a blank check.
Here's what Paulson, Ben Bernanke, Timothy Geithner, and Larry Summers decided to do instead of holding the big banks accountable:
"They did not take harsh measures to shut down or clean up sick banks. They did not cut major financial institutions off from the public dole. They did not touch the channels of political influence that the banks had used so adeptly to secure decades of deregulatory policies. They did not force out a single CEO of a major commercial or investment bank, despite the fact that most of them were deeply implicated in the misjudgments that nearly brought them to catastrophe." (p. 173)
The United States didn't even follow its own advice it gives "emerging market" countries when they have experienced similar financial crises. I couldn't help but think while reading Johnson and Kwak's clearly written and well researched book that George W. Bush really did succeed in turning the United States into a Third World country.
When the dust settled the economy was in free fall and any "restructuring" that took place benefited the biggest players. This oligopoly, which in an earlier era would have been called the "Money Trust," is already in the process of setting us up for the next gigantic taxpayer bailout. They are "too big to fail."
Johnson and Kwak call for a simple anti-trust law solution: No investment bank could be larger than 2 percent of the GDP and no bank could be bigger than 4 percent of GDP. This new law they propose would end the problem of "too big to fail."
And it would only affect six banks:
"Bank of America (16 percent of GDP), JPMorgan Chase (14 percent), Citigroup (13 percent), Wells Fargo (9 percent), Goldman Sachs (6 percent), and Morgan Stanley (5 percent). . . . Saying that we cannot break up our largest banks is saying that our economic futures depend on these six companies (some of which are in various states of ill health). That should frighten us into action." (p. 217)
In England, the executives of bailed out banks were fired, the shareholders took a bath, and the system was restructured on the government's terms. In the United States, the government just forked over $810 billion in taxpayer money (and billions more in guarantees) with virtually no strings attached. It was the biggest heist in world history.
Now that the Obama Administration's Securities and Exchange Commission (SEC) has finally shown a little spine by suing Goldman Sachs for fraud perhaps this development could be the first step in finally bringing to justice these rich and rapacious swindlers.
Paul Krugman and other economists seem to believe that the problem of "too big to fail" can be adequately addressed through stricter regulations. But I think Johnson and Kwak are correct in calling for these six huge institutions to be cut down to less than 4 percent of GDP. We can pass all the regulations in the world but Wall Street will always find ways to get their cronies appointed to key regulatory positions as they have done for decades and continue to do so. "Never before has so much taxpayer money been dedicated to save an industry from the consequences of its own mistakes," Johnson and Kwak remind us. The full force of the federal government must come down on this new Money Trust on multiple fronts to ensure that it will never again be in a position to extort billions of taxpayer dollars simply because of its size and power.
Right now, these same financial companies are spending tens of millions of dollars in campaign donations and "lobbying" the Congress against any new regulations. They have clearly bought off Senate Republican Minority Leader Mitch McConnell lock, stock, and barrel. Hopefully, the SEC's pursuit of long-overdue fraud charges against Goldman Sachs is only the beginning of a process that will take the country back from these financial monopolists. Goldman's fraud case, we all know, is just the tip of the iceberg.