Chapter 9: After the Crash of 2008: Financial Reform in an Age of Plutocracy
Robert E. Prasch* At the heart of every [financial] crisis is a political problem – powerful people, and the firms they control, have gotten out of hand. Unless this is dealt with as part of the stabilization program, all the government has done is provide an unconditional bailout. Simon Johnson, Economist, MIT & former Chief Economist, IMF, in testimony submitted to the US Congress, 19 November 2009 In Washington, the view is that the banks are to be regulated, and my view is that Washington and the regulators are there to serve the banks. Spencer Bachus (R – AL), Chair-designate, Financial Services Committee, US House of Representatives, 13 December 2010 I THE POLITICS OF THE ‘DAY AFTER’: WHO WILL SHOULDER THE LOSSES? Several studies have considered how the current financial catastrophe came about, along with the ideas and decisions that facilitated it (Cassidy, 2009; Johnson and Kwak, 2010; McLean and Nocera, 2010; Muolo and Padilla, 2008; Prasch, 2010). Less frequently contemplated has been the question as to who will take the substantial losses from the tremendous quantity of poor quality financial assets associated with the housing bubble. Small losses, rightly or wrongly, are generally treated as a ‘personal problem’. But when losses become this large, who is to take them is inevitably transformed into a pressing political question. As things stand, three broad classes of persons have emerged as leading candidates to absorb these losses. They are: (1) the shareholders and bonus earners at the major banks, that is to say the firms...
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