“13 Bankers” — Chapter Two: Other People’s Oligarchs

I’m reading Simon Johnson and James Kwak’s new book — “13 Bankers, the Wall Street Takeover and the Next Financial Meltdown” — and posting a summary and excerpts of each chapter.

In chapter two, “Other People’s Oligarchs,” Johnson and Kwak give details of financial meltdowns in the 1990’s — Mexico, Russia, the Czech Republic and Urkraine in 1994 and Southeast Asia, Korea, Brazil and Russia in 1997-1998.  They write that oligarchs who controlled the finances of those countries were blamed.

Johnson and Kwak write that it was widely assumed that the United States was immune from financial problems of of  countries with “emerging markets.”  But, “In September-October 2008, when Lehman Brothers collapsed and panic seized the U.S. economy, money flooded out of the private financial system in what looked like a classic emerging market crisis.”

They write, “When the federal government began rescuing major banks presided over by ultra-wealthy executives — while letting smaller banks fail by the dozens — it began to seem as if our government was bailing out is own uniquely American oligarchy.”

Here is an excerpt from the conclusion of this chapter:

“In similar situations in the 1990s, the United States had urged emerging market countries to deal with the basis economic nd political factors that had created devastating crises.  This advice was often perceived as arrogant, but the basic logic was sound:  when an existing economic elite has led a country into a deep crisis, it is time for change.  And the crisis itself presents a unique, but short-lived, opportunity for change.

“As in Korea a decade before, a new president came to power in the United States in the midst of the crisis.  And just like Kim Dae-jung in Korea, Barack Obama had campaigned as a candidate of change.  Yet far from applying the advice it had so liberally dispensed to others, the U.S. government instead organized generous financial support for its existing economic elite, leaving the captains of the financial sector in place.”

Previous posts about this book:

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