13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

Johnson and Kwak have written the best book I have read so far on the financial mess. Their historical introduction to the subject includes a description of Thomas Jefferson's concerns about banking. Their conclusion that we need to break up the mega-banks cycles back to Jefferson (and also Andrew Jackson). Some technical knowledge is needed to follow all of the arguments of the book, but the authors take great pains to make this material accessible to anyone who reads a daily paper and is vaguely familiar with mortgage backed securities, collateralized debt obligations, credit default swaps, etc. One walks away from this book upset that the new administration in Washington hasn't taken bolder steps to make finance "boring" once again. I seriously hope that Senator Dodd and Representative Frank carefully read this book, pass it to their Congressional colleagues and staff members, and push hard for serious financial reform. This country cannot afford to experience another meltdown, but as the authors (and many others) point out, this last bailout of the "too big to fails" (also known as "heads they win, tails we lose") only gives the big banks more incentive to gamble even more dangerously. We've now had the tech bubble burst (minor recession) and the housing bubble burst (serious recession). What will be the next sector to blow up?

13 Bankers is a more recent book in the crowded market of books on the financial crisis. This book isn't written to be technical, but easily readable. The authors offer up sensible solutions with the warning that if changes aren't made, we will experience the same crisis again. The cause of the crisis is a step that hasn't been undertaken by the government. Page 74 contains a statement that describes American government as we currently know it- "The basic principle behind any oligarchy is that economic power yields political power." That's why Wall Street gets what they want. Some of the avenues used by "the Street" are: The close relationship with Washington. Take Rubin, Paulson and a host of lower level crossovers from Wall Street to Washington and you have people making decisions based on their priorities and what's best for their industry at taxpayer's expense. As deeply committed to the financial sector as Republicans are, the authors list examples of Democrats that supported deregulation and other causes that led to the meltdown. So this problem is a bi-partisan mess. I think that the solutions detailed in this book are the more popular and those that would be fought the hardest by Wall Street. Deregulation and size limits. If an entity is "too big to fail" it is simply too big and that problem can be solved by breaking those companies up. While derivatives haven't been regulated, they need to be. Investment banks that aren't regulated should not have a safety net to cover their mistakes and greedy behavior. This is another very good book to read if you want to know the hows and whys of the financial crisis. Three other books that I have found to be helpful on the subject of the financial crisis are: Freefall: America, Free Markets, and the Sinking of the World Economy Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

Simon Johnson is ubiquitous, appearing on a wide range of shows (at least those I watch such as NPR, PBS, and HBO). He is wonderful to listen to, a guy filled with knowledge (as well he should be since he teaches at MIT). And he has a sense of humor. And he is not one with a "conspiracy theory" which apparently one "reviewer" (one-star one) claims. So when I heard about this book, I had to read it. I grew up in the home of a banker. But Dad was a small-town bank president in what we call "community banks." And the bank still exists and is doing well in Vermont. But my dad, when he retired in the early 70s, said, "Banking isn't banking any more." I had no idea what he was talking about, mainly because I was never much interested in banking. But I have become quite interested in it now that this country has become economically handcuffed by these so-called bankers. This is a very well written book with a very comprehensive set of notes (footnotes) at the end. In other words, anyone writing comments about these authors being conspiracy theorists is simply ignoring the content of the book. Having said this, however, I want to acknowledge that the book isn't written for people who don't have at least a little knowledge about how the world of finance works. In other words, I found myself lost in many places. But I cannot fault the writers or the writing. I simply don't have what we English teachers would call "prior knowledge," the essential tool to reading. The authors are not bashing anyone. The book is structured so the reader is provided with some history (and it is sourced history) before being presented with what happened and how it happened. I like how objective Johnson and Kvak are. To use a phrase that I captured from a cable channel I would never watch, this is "fair and balanced." What most interested this reader is the case the writers make for "The American Oligarchy." Indeed that is what we have with these "financial elites" that run Wall Street. They are so tightly tied into our non-functioning Congress (and to some degree a too-tied-to-Wall-Street White House and to five very-tied-to-Wall-Street on the Supreme Court). I intend to give this book as a gift to a few people I know who really need accurate information. But do "tea baggers" read I wonder.

The desire to analyze the current economic downturn has prompted a deluge of books, most focusing on how to address present and future economic ills and some narrowly focused on individual players and institutions that played a key role in the financial collapse, while others explained the events that led us to this place. "13 Bankers" explains how we got here and more importantly comes up with ideas to prevent a recurrence in the future far more concisely than many others I've read. I could be easy to dismiss Johnson and Kwak's observations as being pessimistic, as makes a very damning indictment of the banking and financial sectors in their past and present conditions and a rather trenchant argument that if these problem are not addressed we likely face another imminent meltdown. The authors give readers a quick concise history of finance and banking in the United States, something that many Americans are woefully unaware of, that points out how banks and financial institutions came to garner so much power over the economy. While efforts have been made to regulate them to varying degrees those regulations have often proven ineffective or are too often enacted AFTER financial catastrophes, much our current situation. The authors rather persuasively argue that the "too big to fail" model and the bailouts of 2008 and 2009 were misguided, arguing that nationalization would have been the better route to go. They continue the argument that the forced mergers, such as Merrill Lynch and Bank of America, were mistakes and instead had created institutions that are now truly to big to fail. In some respects it almost sounds like a Teddy Roosevelt-era trust buster and his argument that these large institutions need to be broken up to diffuse their power certainly makes sense. They also point out the corrosive effect their political clout and donations carry with the political process, hindering further efforts at regulation. Ultimately "13 Bankers is far more satisfying a read than some recent books on the subject such as The Road from Ruin: How to Revive Capitalism and Put America Back on Top, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System, Rediscovering Values: On Wall Street, Main Street, and Your Street, and America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need. Yet the sad truth is that while the authors make a compelling argument for change the political establishment in Washington lacks the political will to break up these excessively large institutions. It wouldn't be good for THEIR business, which is getting reelected. While there are efforts afoot in Washington at reform none are as radical a surgery as proposed here, but suffice to say when the next financial catastrophe comes, and the authors argue it IS coming, there is unlikely to be any taxpayer/voter support for ANY bailout in ANY form. If anything "13 Bankers" made me mad as hell and again

13 Bankers takes us through he painful history of the financial crisis that brought us where we are today and that now makes it so hard to move forward. Simon and Kwak argue that absent reform, another bailout - a more costly bailout with even greater global consequences, millions of jobs lost, and a ruinous impact on our government budget - is unavoidable. Many Americans apparently do not yet understand how much influence financial institutions have in Washington, DC. Banks used to answer to Washington and were once held accountable for their actions. That is no longer is the case. We have never had such a concentrated banking system in the United States and it's dangerous that so much of our financial future is wrapped up in the big banks. But the book is not pessimistic. Simon and Kwak offer instances from our history when elected representatives took on concentrated financial power. Each time, most Americans initially did not grasp how the system works, and this proved a major obstacle to reform. But the political leadership was able to explain what needed to be done, and to persuade average Americans that the nature of power in and around the financial sector had become so great and so distorted that something major had to be done. The book is not anti-finance, but it is very much against the way our biggest banks operate today. The book describes exactly what needs to be done so that what happened in 2008-09 will never be allowed to happen again. Let's hope the prescription works.