Emerging market characteristics in nexus between US govt and Wall Street

by Dave

Simon Johnson  documents how Wall Street lobbying to obtain favored status with US politicians, not only precipitated this financial crisis, but also is preventing an adequate resolution – policy decisions are being made to favor banks at the expense of taxpayers, thus setting the US up to follow in the footsteps of Russia and  Argentina.
The Atlantic Online

the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

the U.S. is unique. And just as we have the world’s most advanced
economy, military, and technology, we also have its most advanced
oligarchy.

In a primitive political system, power is transmitted through
violence, or the threat of violence: military coups, private militias,
and so on. In a less primitive system more typical of emerging markets,
power is transmitted via money: bribes, kickbacks, and offshore bank
accounts.
Although lobbying and campaign contributions certainly play
major roles in the American political system, old-fashioned
corruption—envelopes stuffed with $100 bills—is probably a sideshow
today, Jack Abramoff notwithstanding.

[T]he American financial industry gained political power by
amassing a kind of cultural capital—a belief system. Once, perhaps,
what was good for General Motors was good for the country. Over the
past decade, the attitude took hold that what was good for Wall Street
was good for the country. The banking-and-securities industry has
become one of the top contributors to political campaigns
…A whole generation of policy makers has been mesmerized by Wall Street,
always and utterly convinced that whatever the banks said was true.

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