Simon Johnson, ex-chief economist at the IMF, lays bare some home truths about financial crises over at The Atlantic. He’s writing about the USA but lessons could certainly be learnt closer to home.
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 governmenta state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMFs 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, were running out of time.
The conclusion is chilling
The conventional wisdom among the elite is still that the current slump cannot be as bad as the Great Depression. This view is wrong. What we face now could, in fact, be worse than the Great Depression
He has solutions, go read them.
Update : David McWilliams in the Indo on a similar theme, the silent takeover of the Irish state by the banks. He argues with the establishment of NAMA the bank guarantee must be rescinded.
From the article itself –
Yet the economic solution is seldom very hard to work out.
No, the real concern of the funds senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.
Typically, these countries are in a desperate economic situation for one simple reasonthe powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knitand, most of the time, genteeloligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckoncorrectly, in most casesthat their political connections will allow them to push onto the government any substantial problems that arise.
Anglo-Irish Bank anyone?