The American oligarchs

You've probably seen other links to the Simon Johnson essay in The Atlantic this month. I don't do the "must read" fever-blogging much, but this one's an exception. What's getting most people's attention is his comparison of U.S. financial industry titans to the Russian oligarchs, but his conclusion is the most terrifying thing. Basically, that the "best case scenario" would be for the financial industry rescue plan to fail so that we can finally admit the rot in our financial institutions, diminish the power of the banking CEOs, and find the political will -- out of absolute necessity -- to reform the industry.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

What makes this whole thing even more terrifying is that for as bad as the banking execs in the U.S. seem to be, their counterparts in Europe seem to be in even greater denial, with the European governments abetting them in the charade.