Friday, March 27, 2009

The Intelligentsia Opines: U. S. as Russia-tina

Two recent articles have surfaced, each written by former IMF economists, one of whom is also an MIT professor and the other of whom has spent time with Big Finance, each comparing the U. S. to such countries as Argentina or Russia during their various economic crises. Here are links to each with small snippets. The first of these is very well written and easily digested in one sitting.

From "The Quiet Coup", by Dr. Simon Johnson (published by The Atlantic Monthly)

(Intro): The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time. . .

Becoming a Banana Republic
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). . .

From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man).

Similarly, Desmond Lachman pens "Re-Emerging as an Emerging Market" (Washington Post), which begins:

Back in the spring of 1998, when Boris Yeltsin was still at Russia's helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to "emerging markets" throughout Asia, Eastern Europe and Latin America, and I thought I'd seen it all. Yet I still recall the shock I felt at a meeting in Russia's dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia's economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia's economic czar at the time.

At the time, I could not imagine that anything remotely similar could happen in the United States. Indeed, I shared the American conceit that most emerging-market nations had poorly developed institutions and would do well to emulate Washington and Wall Street. These days, though, I'm hardly so confident. Many economists and analysts are worrying that the United States might go the way of Japan, which suffered a "lost decade" after its own real estate market fell apart in the early 1990s. But I'm more concerned that the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we're trying to fix it.

Finally, another Obama supporter (gingerly) criticizes him for his latest bail-out plan, in a Naked Capitalism post:

Guest Post: The new bailouts are an end-run around Congress

Submitted by Edward Harrison of the site Credit Writedowns

Edward Harrison here. What follows is a post I wrote for Credit Writedowns last night. Before I present the post, I want to make a few editorial comments, however.

First, for full disclosure, I support Barack Obama. I voted for him, campaigned for him and contributed to his run for office. I am happy to see him as President.

Nevertheless, he is now making policy that affects us all. As a blogger, I am required to show some objectivity in analyzing his policy decisions. I am not altogether content with that policy and my articles do reflect this.

The Harrison article is a bit lengthy and thinly edited. It presents the Obama-Geithner bank bailout plan in the context of another end-run around Congress, namely the 1995 Mexico bailout engineered by Treasury and the IMF; the legality of the current plan is questioned. It is presented here because it documents the continued flow of Obama supporters who have seen that his policies toward Big Finance are essentially those of George W. Bush, and have begun to criticize him by name. This continuity of policy has been emphasized by this blog since its founding. I continue to believe that Mr. Geithner belongs elsewhere, and should be replaced by someone more adversarial to large complex financial institutions.

Copyright (C) Long Lake LLC 2009

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