"The financial system is playing us for chumps" Bill Moyers is told

First posted Sat, 02/14/2009 - 23:31, not to be overlooked - standingup

“The financial system is playing us for chumps”

That’s what Simon Johnson, former chief economist at the International Monetary Fund, told Bill Moyers on the Bill Moyers Journal that just last night.

And the interview became even scarier. What Johnson and Moyers made clear, without saying it in so many words, is that American democracy is on the line.

Not Chile. Not Argentina. Not Bolivia or anywhere else. America.

What is at stake is the continued existence of the United States as a democratic republic.


Moyers started by reading a quote from a blog Johnson wrote earlier this week, High Noon: Geithner v. The American Oligarchs.

BILL MOYERS: Oligarchy is an un-American term, as you know. It means a government by a small number of people. We don't like to think of ourselves that way.

SIMON JOHNSON: It's a way of governing. As you said. It comes from, you know, a system they tried out in Greece and Athens from time to time. And it was actually an antithesis to democracy in that context. But, exactly what you said, it's a small group with a lot of power. A lot of wealth. They don't necessarily - they're not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots.

BILL MOYERS: Are you saying that the banking industry trumps the president, the Congress and the American government when it comes to this issue so crucial to the survival of American democracy?

SIMON JOHNSON: I don't know. I hope they don't trump it. But the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried.

I have this feeling in my stomach that I felt in other countries, much poorer countries, countries that were headed into really difficult economic situation. When there's a small group of people who got you into a disaster, and who were still powerful. Disaster even made them more powerful.

Now, you can read the text, but you really need to watch the video, to get the full impact of Johnson’s and Moyers’ discussion: the body language, the voice inflections, what was emphasized. Keep in mind that Johnson, being at the IMF, has actually dealt with countries that have been destroyed by incompetent and / or corrupt elites. Moyers asked Johnson whether or not it was a problem having Geithner, who is so familiar with and to the Wall Street crowd, acting as the nation’s enforcer in the financial markets.

SIMON JOHNSON: I have no problem with poachers turning gamekeeper, right? So if you know where the bodies are buried maybe you can help us sort out the problem. And I did think the first three or four minutes of what Mr. Geithner said were very good.

As a definition of a problem, and pointing the finger clearly at the bankers, and saying that the government had been slow to react, and, of course, that included himself. I liked that. And then he started to talk about the specifics. And he said, "The compensation caps we've put in place, for the executives of these banks, are strong." And at that point I just fell out of my chair. That is not true. That is factually inaccurate, in my opinion.

Johnson explained the loopholes that will allow the banksters to take tens of millions of dollars out in bonuses, or retention awards, or whatever they end up calling it. But, it is not a comforting thing to have the Secretary of the Treasury shown to be a blatant liar in the midst of these crises.

BILL MOYERS: Are we chumps?

SIMON JOHNSON: We'll find out. Yes, we may be. Okay. It depends on how we play this politically. It depends on what our political system does. It depends, I think, on the level of reaction. The financial system is playing us for chumps, okay? The bankers think we're chumps.


BILL MOYERS: So here's the trillion dollar question that I take from your blog, that I read at the beginning, quote, "Can this person," your new economic strategist, in this case Geithner, "really break with the vested elite that got you into this much trouble?" Have you seen any evidence this week that he's going to be tough with these guys?

SIMON JOHNSON: I'm trying to be positive. I'm trying to be supportive. I like the administration. I voted for the president. The answer to your question is, no, I haven't seen anything. But you know, perhaps next week I will. But right now, as we speak, I have a bad feeling in my stomach.

My intuition, from crises, from situations that have improved, the situations that got worse, my intuition is that this is going to get a lot worse. It's going to cost us a lot more money. And we are going down a long, dark, blind alley.

There’s a lot more detail provided in the discussion, but I’ll leave you with a snippet of Johnson explaining how to actually solve part of the problem. And this is not even the best part: Johnson explains how to set up market forces to destroy the political power of the financial oligarchy. Again, let me reiterate: you really should take the time to watch the video.

the FDIC is world class at shutting down and managing the handover of deposits, for example, from small banks. They managed IndyMac, the closure of IndyMac, beautifully. People didn't lose touch with their money for even a moment. But they can't do it to big banks, because they don't have the political power. Nobody has the political will to do it.

So you need to take an FDIC-type process. You scale it up. You say, "You haven't raised the capital privately. The government is taking over your bank. You guys are out of business. Your bonuses are wiped out. Your golden parachutes are gone." Okay? Because the bank has failed.

This is a government-supervised bankruptcy process. It's called, in the terminology of the business, it's called an intervention.

A few days before, Michael Hudson sounded much the same warning:

What Wall Street Wants

The first question to ask about the Recovery Program is, “recovery for whom?” The answer is, for the people who design the Recovery Program and their constituency, the bank lobby. The second question is, what is it they want to recover? The answer is, another Bubble economy, having seen the Greenspan Bubble make them so rich with his particular kind of “wealth creation”: wealth in the form of indebtedness of the “real” economy at large to the banking system, and unprecedented capital gains to be made by riding the wave of asset-price inflation.

For the financial elites, the problem is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. . . .

The wealthiest 1 per cent of the population has raised its share of the returns to wealth – dividends, interest, rent and capital gains – from 37 per cent of the total ten years ago to 57 per cent five years ago, and an estimated 70 per cent today. Over two-thirds of the returns to wealth now go to the wealthiest 1 per cent of the population. This is the highest on record. We are approaching Russian kleptocratic levels.

Yet the financial Hard Right of the political spectrum – the lobbyists now in control of the Treasury, the Federal Reserve and the Justice Departments for starters – repeats the new Big Lie: that it is the poor who have brought the system down, “exploiting” the rich by trying to ape their betters and live beyond their means. . . .

I learned the reality a few years ago in London, talking to a commercial bank strategist there. “We’ve had an intellectual breakthrough,” he said. “It’s changed our credit philosophy.” “What is it?” I asked, imagining that he was about to come out with yet a new junk mathematics formula?

“The poor are honest,” he said, accompanying his words with his jaw dropping open as if to say, “Who could have guessed?”

The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal expense. Unlike Donald Trump, the poor are less likely to walk away from their homes when market prices sink below the mortgage level. In today’s neoliberal Chicago School language, the poor behave “uneconomically.” That is, they make choices that do not make economic sense, but rather reflect a group morality. This sociological gullibility is what made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank.


Hudson then details exactly how "Debt-strapped homeowners . . . willing to settle merely for a plan that leaves them in their homes" are going to end up giving away any possible future capital gains in their homes. This is going to cause major pain a decade or so down the road, because all but a very small percentage of Americans have not much more than their homes to finance their retirement. Hudson, who used to be a balance-of-payments economist for Chase Manhattan Bank and therefore knows quite well the games Wall Street plays, also suggests some key phrases and words to watch for as Wall Street shepherds its desires through the new administration.

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We had this discussion over at MLN (greenpeas brought it to our attention in comments).

Plutocracy is a better description of our situation, IMHO. A Plutocracy that has collapsed into a Kleptocracy, given the Robber Baron Banks... The oligarchy is just a part of our plutocracy:

In a plutocracy, the degree of economic inequality is high while the level of social mobility is low. This can apply to a multitude of government systems, as the key elements of plutocracy transcend and often occur concurrently with the features of those systems.

The word plutocracy is derived from the ancient Greek root ploutos, meaning wealth and kratein, meaning to rule or to govern.

The term plutocracy is generally used to describe two distinct concepts: one of a historical nature and one of a modern political nature. The former indicates the political control of the state by an oligarchy of the wealthy. Examples of such plutocracies include some city-states in Ancient Greece, the civilization of Carthage, the Italian merchant republics of Venice and Florence, and Genoa.

Kevin Phillips, author and political strategist to U.S. President Richard Nixon, argues that the United States is a plutocracy in which there is a "fusion of money and government."


A Plutocracy is a government controlled by a minuscule proportion of extremely wealthy individuals found in most societies. In many forms of government, those in power benefit financially, sometimes enough to belong to the aforementioned wealthy class.

Classically, a plutocracy was an oligarchy, which is to say a government controlled by the wealthy few. Usually this meant that these 'plutocrats' controlled the executive, legislative and judicial aspects of government, the armed forces, and most of the natural resources. To a certain degree, there are still some situations in which private corporations and wealthy individuals may exert such strong influence on governments, that the effect can arguably be compared to a plutocracy.

If there are no forms of control within the society, the plutocracy can easily collapse into a kleptocracy, "reign of thieves", where the powerholders attempt to confiscate as much public funds as possible as their private property. A kleptocratic state is usually thoroughly corrupt, has very little production and its economy is unstable. Many failed states represent kleptocracies.


But I do understand that either oligarchy and plutocracy might be used almost interchangeably in these times.

Oligarchy is a form of government where political power effectively rests with a small elite segment of society distinguished by royalty, wealth, family, military powers or occult spiritual hegemony. The word oligarchy is from the Greek words for "few" and "rule".

Early societies may have become oligarchies as an outgrowth of an alliance between rival tribal chieftains or as the result of a caste system. Oligarchies can often become instruments of transformation, by insisting that monarchs or dictators share power, thereby opening the door to power-sharing by other elements of society (while oligarchy means "the rule of the few," monarchy means "the rule of the one"). One example of power-sharing from one person to a larger group of persons occurred when English nobles banded together in 1215 to force a reluctant King John of England to sign the Magna Carta, a tacit recognition both of King John's waning political power and of the existence of an incipient oligarchy (the nobility). As English society continued to grow and develop, Magna Carta was repeatedly revised (1216, 1217, and 1225), guaranteeing greater rights to greater numbers of people, thus setting the stage for English constitutional monarchy.Oligarchy is also compared with Aristocracy and Communism. In an aristocracy, a small group of wealthy or socially prominent citizens control the government. Members of this high social class claim to be, or are considered by others to be, superior to the other people because of family ties, social rank, wealth, or religious affiliation. The word "aristocracy" comes from the Greek term meaning rule by the best. Many aristocrats have inherited titles of nobility such as duke or baron.


Capitalism as a social system is sometimes described as an oligarchy. Socialists argue that in a capitalist society, power - economic, cultural and political - rests in the hands of the capitalist class. Communist states have also been seen as oligarchies, being ruled by a class with special privileges, the nomenklatura.


greenpeas: "In terms of how he thinks the situation should be handled, he is in favor of breaking the banks up into much smaller entities and letting them prey upon themselves essentially. Sound diabolical enough for ya? (grin)"

As for this part? It will have to be done in some way. I think they should be nationalized, clean sweep of the gambling junkies, broken up into "small enough to fail" banks, and then they could be returned to a well regulated market. Originally I had said "let them fail", but the problem with that that took me a while to realize was that if they were just "left to fail" you could add trillions more of losses to the credit derivatives gambling tables making this even worse.

And you can add this to the list of things to do: prosecution and litigation for any criminal and criminally negligent activities.

My beef above with oligarchy is more a matter of a technicality in the actual definition of our society. We have so much more than just a ruling elite. Our politicians profit from their legislation in favor of the oligarchy, etc., corporations, companies and the upper middle class (the lower uber rich?) that have the money to invest - and aren't really part of the true oligarchy - also profit from these manipulations. The rest of "us" pay the price for this selling out. I am sure most of you can recognize the difference and similarities in the two definitions and decide for yourselves.

It sure is somewhat gobsmacking to see and hear an insider talk like this. As greenpeas put it: "This is somebody with what I would consider very insider, accepted connections - Sloan School of Management, Peterson Institute - saying the situation sucks big time."

Thanks for writing this up... I can check one thing off of my own "too-much-to-do list" now. lol

 Too big to fail is too big. Cut them up OR make them into pubic utilities. If it's a monopoly, then it should be owned by the state. This business of 'privatization' costs less is silly if the taxpayer is always on the hook for losses and bail outs.

Maybe I'm crazy but seems to me certain services such as those provided by rail and air service for under-served areas, the Post Office, a bank, should be available as public utilities.