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13 Bankers: The Wall Street Takeover and the Next Financial Meltdown Paperback – January 11, 2011
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From Publishers Weekly
Though this blistering book identifies many causes of the recent financial crisis, from housing policy to minimum capital requirements for banks, the authors lay ultimate blame on a dominant deregulatory ideology and Wall Street's corresponding political influence. Johnson, professor at the MIT Sloan School of Management, and Kwak, a former consultant for McKinsey, follow American finance's rocky road from the debate between Jefferson and Hamilton over the first Bank of the United States through frequent friction between Big Finance and democracy to the Obama administration's responses to the crises. The authors take a highly critical stance toward recent palliative measures, arguing that nationalization of the banks would have been preferable to the bailouts, which have allowed the banks to further consolidate power and resources. Given the swelling size of the six megabanks, the authors make a persuasive case that the financial system cannot be secure until those banks that are too big to fail are somehow broken up. This intelligent, nuanced book might be too technical for general-interest readers, but it synthesizes a significant amount of research while advancing a coherent and compelling point of view. (Apr.)
Copyright © Reed Business Information, a division of Reed Elsevier Inc. All rights reserved. --This text refers to an out of print or unavailable edition of this title.
Johnson and Kwak are the coauthors of The Baseline Scenario, a leading economic blog that pulls no punches when criticizing current economic policy. Just when you thought we were past the worst of the financial crisis, they are here to tell us that another potentially worse meltdown looms ahead in the future, due to the fact that nothing has really changed in the way large financial institutions do business. After the failures of banks like IndyMac, WaMu, and Wachovia, there are now just a handful of banks left that control not only all the money but also the political influence to prevent the kind of reform that is needed to rein in the industry from indulging in the risk-taking practices that got us in trouble in the first place. The government has already set the precedent that these financial institutions are “too big to fail,” thus shifting all the risk onto the American taxpayer if and when the next financial crisis occurs. The authors propose enacting strong legislation that will effectively reduce the size and scope of our national banks and make them “small enough to fail.” --David Siegfried --This text refers to an out of print or unavailable edition of this title.
Top customer reviews
This is one of the top three books on the financial crises.
Break up the big banks is exactly right. Teddy Roosevelt William Taft and FDR would do the same.
It's not hard to break them up even if your nutty professor Mr. Bernie Sanders can't figure it out.
You appoint a govt. agency to seize the banks, they break it up into parts,
and you auction them off to bidders who are qualified in advance. Use and old agency create a new one; who cares.
The power is in the hands of the Congress, they can do it 100 different ways.
Get out your legislative hammer and break them into a 1000 constitutional pieces.
You are exactly right and Lord bless you Mr. Simon.
This book attempts to explain the linkage between regulatory capture by the banks with a larger historical struggle between rival visions of how our country was supposed to look. Johnson and Kwak take a page from Max Weber by attempting to identify the basic philosophical outlook of Americans with the protagonist of the bank regulatory struggle. Just as Weber attempted to explain the rise of capitalism in terms of Christian theology--explicitly providing a liberal alternative to Marxism--so J&K attempt to explain the evolution of the US banking sector in terms of Jefferson's and Jackson's writings on the subject. In both cases, Jefferson's and Jackson's views on commercial banking are supposedly enlightened, if a bit sentimental, and pose obstacles to the rise of the monster bank holding company.
At the same time, J&K attempt to explain a large number of basic ideas in economics and finance to the reader--explanations that are neither very wrong nor very helpful.
The philosophical-historical aspect of the book is not helpful at all; for one thing, there's no meaningful connection between banking then and banking now. Second, even if there were a meaningful connection, I cannot accept the idea that the USA has a genome that consists of the recondite opinions of Jefferson, Jackson, or Alexander Hamilton. Why them and not Salmon P Chase? Why not Carl Schurz? These are people with a lot more influence on the modern banking system. Still, I can excuse this as an mere idiosyncrasy: J&K thought Jefferson and Jackson were part of the "spiritual essence" of the Republic, perhaps, or at least wanted to hold them up as a glorious benchmark.*
Polemically, the book is uneven. They often describe "Wall Street" as an insidious villain, then deny that they are doing any such thing. They mention the "[cognitive] regulatory capture" (p.93) but fail to mount a serious challenge to that cognition; libertarian reviewers uniformly ridiculed J&K's claim that banking was deregulated or unfettered at all, and compared to banking systems in other industrialized countries, they have a point. They attempt at times to adhere to an impersonal, systemic explanation of the crisis, but seldom persevere for long. As a result, readers with a different philosophical outlook are not going to be convinced.
As an explanation of the crisis, the book is not very helpful. They could have gone academic, with rigorous models (Kenneth Rogoff and Carmen Reinhart do this; their approach is not an insuperable challenge for non-eonomists, I believe). Or they could have tried something really non-academic, like Frank Partnoy did. In my view, this book doesn't really explain the crisis very well, and it doesn't really explain the evolution of the banking system very well. It tries, and it makes few major errors, but mostly it wastes a lot of time with ineffectual polemics and sentimental history.
UPDATE (3 October 2011): I relented from giving this book only 2 stars; that seems a bit harsh. There is not really anything in the book that is wrong, and I suspect my judgment was biased negatively because I had read so much of the same thing over and over again. That's not the fault of J&K.
*Aesthetically I find this intensely irritating, but I can't assume everyone else will. The idea is to reverentially invoke someone from the distant past and make invidious comparisons with the present; no one ever bothers to mention that Jefferson, inter alia, was often silly, inconsistent, and disingenuous, just like people are nowadays.