The Quiet Coup: How the Finance Industry Captured Our Government

"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."

Investment bankers running the Treasury. Former Goldman Sachs' employees at every high level policy post that affects the economy. A belief that the United States must preserve its financial sector and keep it the most dominant in the world because, somehow, that equates to national power.

"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."

What has this led to?

The failure to understand the banking system and how to fix it. Efforts to sustain a financial sector that adds little value to the real economy. A perverse misallocation of our capital, particularly human capital. Incentvizing non productive work--essentially, paper flipping--for obscene compensation. The fostering of a "casino economy," where the production of real assets is declining relative to the dollar amount of traded contracts that, again, add no real value.

"Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside."

I'm no big fan of the IMF, however the author of this article,who is a former IMF economist, has it absolutely right on this point. Unless we take apart the financial sector and reduce its influence on policymaking, we will run our nation into the ground in a cataclysm of financial speculation.