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Does Wall Street control the government?

Tyler Cowen offers some interesting thoughts on whether the financial sector dominates the U.S. government:

Perhaps the strongest piece of evidence for the financial sector dominance of U.S. political economy is the recent bailouts. Yet it's instructive to ask which other groups have received bailouts in the last fifteen years. The list would include Mexico and the numerous countries which have borrowed from the largely U.S.-created International Monetary Fund, such as Indonesia. They are hardly dominant forces of influence in Washington. It was China who made out like a bandit from the bailout of the mortgage agencies, and the validation of their debt issues, but again the Chinese are not in charge.

There's a different way to think about the bailouts, namely that the U.S. government stands at the center of a giant nexus of money raising, most of all to finance the U.S. government budget deficit and keep the whole show up and running. The perception at least is that our country requires the dollar as a reserve currency, requires New York City as a major banking center with major banks, and requires fully credible governmental guarantees behind every Treasury auction and requires liquid financial markets more generally. Furthermore the international trade presence of the United States (supposedly) requires the federal government to strongly ally with major commercial interests, just as our government sides with Hollywood in trade and intellectual property disputes. To abandon banks is to send a broader message that we are in commercial and political decline and disarray, and that is hardly an acceptable way to proceed, at least not according to the standards of the real Washington consensus.

In other words, it's our government deciding to assemble a cooperative ruling coalition - which includes banks -- at the heart of its fiscal core. It's our government deciding who belongs to this coalition and who does not, mostly for reasons of political expediency and also a perception - correct or not -- of what is best for the welfare of American voters. If we don't in this year "get tough" with banking regulation, it's because our government itself doesn't want to, not because of some stubborn recalcitrant Republicans.

Agreed. There are discrete issues where the relevant obstructions are being erected by Senate Republicans. But so far as the general approach to Wall Street goes, that's been primarily set by the administration, for much the reasons Cowen offers.

To say that a little more clearly, there are elements of the financial regulation bill that have a lot to do with fights between Democrats and Republicans. Whether the Consumer Financial Protection Bureau is housed at the Federal Reserve, or whether there's a $50 billion liquidation fund, for instance. But the type of financial regulation bill we're arguing about -- one that doesn't break up the big banks, or set sharp capital ratios, or fundamentally reform the way the financial sector does business in non-crisis periods -- is the product of the attitude the government takes toward the fundamental worth of Wall Street, which did not change drastically when the Bush/Paulson team gave way to the Obama/Geithner team.

That attitude reflects the government's perception of Wall Street's importance to the American economy and to American power, and its sense that dramatic reforms that substantially change the industry would likely make things worse rather than better.

By Ezra Klein  |  April 20, 2010; 10:33 AM ET
Categories:  Financial Regulation  
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Comments

So the banks have convinced everyone they are indispensible. A very dangerous situation. Moreover, they all believe their own hype (Blankfein's "doing god's work" quote) which makes it even more dangerous.

We really need sopme serious reform here and it is clear that neither party really wants that. This is the situation described by James Galbraith in his prescient book "The Predator State." It is very unhealthy for US citizens, for society and for our democracy.

Posted by: Mimikatz | April 20, 2010 11:23 AM | Report abuse

It's true here, that the government is dependent on a strong banking sector to support its profligate deficit spending.

I think Tyler's argument, which wasn't here, is that breaking up the banks isn't the deeper solution, we need to break our dependence on them to finance our collective irresponsibility.

"This analysis bears on one of the main policy recommendations of Johnson and Kwak, namely to break up the big banks so they cannot soil Washington with such powerful lobbying and privileges. I believe this recommendation will not achieve its stated ends and that Washington would find another way to assemble privileged financial institutions - no matter what their exact form -- within its ruling coalition. Breaking up the large banks would be striking at symptoms rather than at root causes, namely the ongoing growth of political power and the reliance of that power upon an ongoing inflow of capital.

If you do wish to break or limit the power of the major banks, running a balanced budget is probably the most important step we could take. It would mean that our government no longer needs to worry so much about financing its activities. Of course such an outcome is distant these days, mostly because American voters love both high government spending and relatively low taxes. "

Posted by: staticvars | April 20, 2010 12:24 PM | Report abuse

Does Wall Street control the government?

If you left it up to the Republicans, it would, and the reason why is because over the years, things being as they are, many have learned how to manipulate stocks, bonds, etc., and have become such megalomaniacs as a result, they can buy and sell anybody and it seems most politicans are up for sale.

For example, in Florida, they have a wonderful Governor Crist running for the Senate, instead the People of the State of Florida are about to elect a Lobbyist instead.

Now what would anyone with a brain expect a Lobbyist to do with the power of a Senator?

Nothing at all for the People of the State of Florida you can bet.


Posted by: lindalovejones | April 20, 2010 12:25 PM | Report abuse

Does Wall Street control the government?

If you left it up to the Republicans, it would, and the reason why is because over the years, things being as they are, many have learned how to manipulate stocks, bonds, etc., and have become such megalomaniacs as a result, they can buy and sell anybody and it seems most politicans are up for sale.

For example, in Florida, they have a wonderful Governor Crist running for the Senate, instead the People of the State of Florida are about to elect a Lobbyist instead.

Now what would anyone with a brain expect a Lobbyist to do with the power of a Senator?

Nothing at all for the People of the State of Florida you can bet.


Posted by: lindalovejones | April 20, 2010 12:26 PM | Report abuse

You neatly avoid the Glass-Stegall bill's removal by Gramm(Phil-I'm_surrounded-by-whiners)when Don Clint-juan was in office, the help given to Enron by his wife, Wendy and her subsequent position on the Enron board.

Only fifteen minutes need pass and it seems it's time to revise all the facts.

Yes, Wall street controls the government as much as it needs to because our government, especially under RepubliKKKans, sells out to the money every time, and right now Wall street has the money. Nexy time maybe drug companies, energy companies or whatever.

We really have seen the system gamed, but you and your uberKKKontrolling party are nowhere close to being the right people to reform it.

Any truth to the rumor that you're jockeying for clients among the newly voiced corporations for political messaging business? Hmmm??

Posted by: bgreen2224 | April 20, 2010 12:28 PM | Report abuse

Does Wall St control government? Short answer, YES!!! As Durbin said, banks own congress. The problem isn't that congress can be bought, its that congresscritters are so cheap relative to the obscene amounts of money made by investment banks and their executives.

When a financial reform bill is actually passed, we will see if bankers' fingerprints are all over it, with loopholes big enough to fit Goldman Sachs' bonus pool through them.

Posted by: srw3 | April 20, 2010 2:17 PM | Report abuse

When the guys who ruined the economy are broke and in jail instead of walking away with pockets full of cash, I'll believe the government is acting in the best interest of the citizens. Until then, they're puppets.

Posted by: dpurp | April 20, 2010 9:28 PM | Report abuse

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