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Power shifting back from Washington to New York: Recapture of the State in the offing?
By Kaufmann | December 15, 2009 No Comments »
Imagine you hold a very high position in the US Government, in Washington, DC. And you believe it is important to talk to the top Wall Street bankers, to nudge them to be more modest about their bonuses, and more generous about their lending. You call a meeting with these top bankers in Washington. The chief executive of JP Morgan shows up from New York for the high level meeting. But those from Goldman Sachs, Morgan Stanley and Citigroup do not make the 200 mile trip. Their excuse: the weather (which was not too bad).
Who were these bankers supposed to meet with in person but did not show up?: President Obama. When?: …
…earlier today — a few months after the banks had already been rescued, and with the process of repaying the Government well underway already. Their incentives to show up had dramatically changed over the past year or so. This article in the New York Times is telling. The no-show incident is perhaps a metaphor about who is actually in charge; how the power is shifting again from Washington to New York City. As if the global financial crisis did not happen, or if it did, as if Wall Street excessive influence over policy and regulations had nothing to do with it.
We were writing about capture of the state and its regulatory regime years ago (with data dating back to 2004). Given the euphoric economic and financial times in the past, it was almost excusable that no attention was paid to the problem then. But now? It is as if we may be on the way back to square one. Admittedly, we are still far form being back where we were in terms of the extent of legal corruption and capture of the past, and the concomitant excessive risks taken, but signs are worrisome.
And one wonders whether the White House actually believed that exhortations and admonitions would really make a dent on the bankers (even if they had showed up in person today). Unless incentives and regulations are revamped, and the power of the Wall Street elite (and the very large financial institutions) to shape financial regulations and practices is drastically curtailed, exhortations will go nowhere (other than nice PR headlines for both sides for a few days).
Lobbyists are already working furiously to mitigate the likelihood of any meaningful reform. Yet I believe that at some level President Obama, together with a few of his key advisers (and, as we know, some politicians in Congress, but not others), still think that serious reforms needs to take place. But merely stating or thinking that it is important will not do. Leadership and mettle from the very top will be required to push for such reforms, soon after resolution of the health care reform conundrum.
Topics: capture, Corruption, financial crisis, Measurement Frontiers, Public Financial Management, Public-Private Linkages, Transparency | | Read and Submit Comments