Beyond regulatory capture
From Simon Johnson, ‘The Quiet Coup”, Altantic Monthly May, 2009.
Mr. Johnson is a former chief economist for the IMF. As such, he has been involved in financial rescue packages for a number of emerging economies. The general problem is that the oligarchs have taken on outsized risks, which have gone bad. The solution is for the government to let a few of them fall. This is politically difficult, as the oligarchs have power.
He writes: “In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American
political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a
sideshow today, Jack Abramoff notwithstanding.
Instead, the American financial industry gained political power by amassing a kind of cultural
capital—a belief system … Washington already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.”
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