Former IMF chief economist Simon Johnson says bankers are playing us for chumps

Bill Moyers Journal is the best show on TV. And Bill’s guest this week, MIT Sloan School of Management professor and former IMF chief economist Simon Johnson, hit a home run with his comments on the financial crisis, what we should be doing about it, and why we’re not. He says we routinely shut down smaller banks but that America’s mega-banks are now playing American taxpayers for chumps because we’re too chicken to treat them like normal banks.

When normal banks have fewer assets than liabilities, the government “intervenes” and takes possession of those banks. Depositors' accounts are transferred to healthier banks. Those who drove the bank to bankrupcy are fired. And bank assets are transferred to healthier banks. America’s failed mega-banks should be similarly reorganized. They must also be broken up because, as Sen. Bernie Sanders says, “If they’re too big to fail, they’re too big to exist.” These mega-banks are throwing their political heft around and receiving massive Fed and Treasury bailouts instead of being broken up, as routinely happens with failed regular banks.

Having worked at the IMF, Johnson has more experience dealing with failed banks (in both successful and unsuccessful financial crises) than almost anyone running the U.S. bailout. So his pessimism, based on the great power mega-bank insiders still wield in U.S. government, is troubling.

I agree with everything he said and encourage you to watch his twenty-minute interview.

Posted by James on Tuesday, February 17, 2009