6 ms·

The Quiet Coup: IMF advice on the US economy

59 points by moonpolysoft 18y ago

christofd 18y ago
This is the first good article I've found that shows parallels between corruption or monopolistic/oligopolistic behavior in developing nations and the current U.S. system, written by an old IMF practitioner: -banks too big in size -banks influence policy (treasury officials are often former bankers) -advice on what happens when developing nations wreck their financial system and what is usually necessary to heal -argument for why nationalization of banks makes sense Who could provide better advice than an organization that routinely deals with these kinds of failures? It turns out, this kind of stuff happens all the time... just not here in the U.S.
- anamax 18y ago
  > Who could provide better advice than an organization that routinely deals with these kinds of failures? How about an organization that SUCCESSFULLY deals with these kinds of failures? > -banks too big in size When/where did the IMF dealt with any banks approaching the size of Wachovia, let alone Citigroup? > -banks influence policy (treasury officials are often former bankers) Since the IMF is filled with bankers.... I note that the current Treasury Secretary was IMF. I've heard that his Indonesian work caused horrific damage.
  - christofd 18y ago
    Granted, I don't know enough about the track record of the IMF. Them sort of being the 'Emergency Room' staff for failed nations does give them insights into typical reasons for malfunction. I don't really have a grip (and most people don't) on how these huge sums here in the U.S., e.g. 4-5 trillion dollars estimated in bad assets on the books, add up. Reading Krugman/ de Long/ Cowen/ Kedrovsky etc. still hasn't given me enough perspective. So I'd like to see some input from people that know all the angles on how crooks get away with money! Their experience from developing nations is helpful.
    - anamax 18y ago
      > Them sort of being the 'Emergency Room' staff for failed nations does give them insights into typical reasons for malfunction. Which doesn't help, and may hurt, because we're not failing for "typical reasons". > So I'd like to see some input from people that know all the angles on how crooks get away with money! Their experience from developing nations is helpful. If that's your reason for thinking that the IMF will help, it's almost certainly wrong. Think of it this way. Does skill at catching shoplifters help if you're trying to stop murderers? Note that the bulk of the IMF's activities are "development", which often ends up bankrupting the country.... That's not to say that such countries wouldn't have failed anyway or that contries don't fail without IMF help, just that IMF involvement doesn't necessarily end up with ponies and kittens. Don't take my criticism of the IMF as support for the current batch of US folks - it isn't. (Pretty much every one of Fed Chairman Bernake's predictions has been horrifically wrong.) I'm just pointing out that it's quite possible for the IMF to be even worse. Remember, that it's always possible to make things worse. (Better and worse are both changes.)
      - christofd 18y ago
        Well, I was hoping for a fresh outside perspective. We here in the U.S. have been shafted for so long that we've got 'Stockholm Syndrome'. It's time for some wrath - nothing better than an institution that deals with 3rd world dictators to call out breaches of law. You could call it 'ethical awareness' that an outside perspective can contribute. Granted, given actual policy, the U.S. situation is unique and therefore the IMF's experience might not directly apply, e.g. I don't think that too many developing nations failed because of 'credit default swaps'. However, many bankers currently (and in the past) are in policy positions, and suddenly the lessons from corruption and aggregation of power in 3rd world countries apply.
        anamax 18y ago
        > It's time for some wrath - nothing better than an institution that deals with 3rd world dictators to call out breaches of law. The IMF doesn't "deal with" 3rd world dictators or "call out breaches of law". > You could call it 'ethical awareness' that an outside perspective can contribute. And you could call it a pony for all the good it would do. "Outside" doesn't tell you anything about the value of a perspective. > However, many bankers currently (and in the past) are in policy positions, and suddenly the lessons from corruption and aggregation of power in 3rd world countries apply. If you're arguing that "IMF bankers will fix things", you're ignoring the fact that IMF bankers are what got us into this and we're currently using IMF bankers. (Guess where the current treasury secretary used to work.) If you're arguing that the IMF is used to dealing with corrupt bankers, you're simply wrong. And, if you're arguing that the US has problems because of corrupt bankers, you don't know anything useful about said problems. > Well, I was hoping for a fresh outside perspective. Hope is not a plan. Change is not necessary good. And an outside perspective isn't necessarily relevant. (Different can be good or bad.) And, it's not "fresh". > We here in the U.S. have been shafted for so long that we've got 'Stockholm Syndrome'. One of the symptoms is grasping at anything, without regard for whether it actually helps or is even relevant. So, to end on a positive note, it's likely that you've accurately explained why you're thrashing around uselessly.
kqr2 18y ago
This reminds me of a recent HN thread : How Rich Countries Die http://news.ycombinator.com/item?id=518776 http://news.ycombinator.com/item?id=518776 Over time special interest groups work to reduce a society’s efficiency and GDP by enriching themselves -- in this case it's the financial industry. Another common idea is regulatory capture: http://en.wikipedia.org/wiki/Regulatory_capture http://en.wikipedia.org/wiki/Regulatory_capture Regulatory capture is a term used to refer to situations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating. The SEC and other government posts like the Secretary of Treasury are unduly influenced by the finance industry. In fact, as the article points out, those government positions are often filled with alumni from the finance industry.
rjurney 18y ago
I don't know what else to say about this article except that it is the finest explanation of the banking crisis that I have yet encountered. Seriously, this is a must-read for everyone. Sobering.
- jonnycoder 18y ago
  Rolling Stone has an outstanding article explaining the current crisis. I think you'll love it: http://www.rollingstone.com/politics/story/26793903/the_big_takeover/ http://www.rollingstone.com/politics/story/26793903/the_big_...
- fatjonny 18y ago
  I enjoyed the article. I also enjoyed looking through their blog (which is mentioned at the bottom of the article pages). It seems like a good place to get an easy to understand analysis of the banking crisis news. http://baselinescenario.com/ http://baselinescenario.com/
berntb 18y ago
I think the banking crisis was milder in Sweden because of the handling of the crisis in the beginning of the 1990s. Then, the shareholders of the Swedish banks were hurt to save the banks, so the banks knew they would not get _free_ money from the state in the next crisis (which makes the banks a bit of an exception in Sweden, but that is another discussion.) After reading the article, it seems both more complex and simpler than that. Really good.
cousin_it 18y ago
Here in Russia a lot of people sighed freely some years ago when our debt to the IMF finally was repaid, early and in full. The organization has a very bad name here for advocating drastic reforms that led to social shock and, yes, many deaths. It might be more a fault of our own government, but still it feels better to be debt-free.
- rjurney 18y ago
  The man speaks so much sense that its easy to forget IMF/WB/USAid debacles in eastern Europe. Even under his watch?
biohacker42 18y ago
The us will get through this, a year, or two, probably not 3, from now we'll start growing again and get high inflation. Then the fed will raise rates to kill inflation, economic growth will slow down to a crawl and we'll begin paying off our debts. This will last 10 to 20, just like Japan.
- asmithmd1 18y ago
  exactly right. And the system will be the same as before - nothing will have been done to address the heart of the problem - banks that are "too big to fail". Anything that is too big to fail is just too big. We have successfully broken-up companies that were too big before - AT&T comes to mind. Do you think we would have an open internet if one company controlled all access to long distance communication like AT&T did before 1984? http://en.wikipedia.org/wiki/Bell_System_divestiture http://en.wikipedia.org/wiki/Bell_System_divestiture
  - randallsquared 18y ago
    Entities that are that big have big lobbies. Big lobbies give effective control of governing bodies (at least, in their limited scope); this is known as regulatory capture. AT&T was broken up by judge, not by Congress, so it is not a good counterexample.
    - silentOpen 18y ago
      I don't think the parent cares how AT&T was broken up. Why not break up financial institutions through the judiciary? Oh, because the anti-trust laws are crippled...
Xichekolas 18y ago
> Yet the principal characteristics of the government’s response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector. The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary. Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC intervention is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse. Finally someone said it, and better than I ever could have.

59 points by moonpolysoft 18y ago

This is the first good article I've found that shows parallels between corruption or monopolistic/oligopolistic behavior in developing nations and the current U.S. system, written by an old IMF practitioner: -banks too big in size -banks influence policy (treasury officials are often former bankers) -advice on what happens when developing nations wreck their financial system and what is usually necessary to heal -argument for why nationalization of banks makes sense Who could provide better advice than an organization that routinely deals with these kinds of failures? It turns out, this kind of stuff happens all the time... just not here in the U.S.

anamax 18y ago
> Who could provide better advice than an organization that routinely deals with these kinds of failures? How about an organization that SUCCESSFULLY deals with these kinds of failures? > -banks too big in size When/where did the IMF dealt with any banks approaching the size of Wachovia, let alone Citigroup? > -banks influence policy (treasury officials are often former bankers) Since the IMF is filled with bankers.... I note that the current Treasury Secretary was IMF. I've heard that his Indonesian work caused horrific damage.
- christofd 18y ago
  Granted, I don't know enough about the track record of the IMF. Them sort of being the 'Emergency Room' staff for failed nations does give them insights into typical reasons for malfunction. I don't really have a grip (and most people don't) on how these huge sums here in the U.S., e.g. 4-5 trillion dollars estimated in bad assets on the books, add up. Reading Krugman/ de Long/ Cowen/ Kedrovsky etc. still hasn't given me enough perspective. So I'd like to see some input from people that know all the angles on how crooks get away with money! Their experience from developing nations is helpful.
  - anamax 18y ago
    > Them sort of being the 'Emergency Room' staff for failed nations does give them insights into typical reasons for malfunction. Which doesn't help, and may hurt, because we're not failing for "typical reasons". > So I'd like to see some input from people that know all the angles on how crooks get away with money! Their experience from developing nations is helpful. If that's your reason for thinking that the IMF will help, it's almost certainly wrong. Think of it this way. Does skill at catching shoplifters help if you're trying to stop murderers? Note that the bulk of the IMF's activities are "development", which often ends up bankrupting the country.... That's not to say that such countries wouldn't have failed anyway or that contries don't fail without IMF help, just that IMF involvement doesn't necessarily end up with ponies and kittens. Don't take my criticism of the IMF as support for the current batch of US folks - it isn't. (Pretty much every one of Fed Chairman Bernake's predictions has been horrifically wrong.) I'm just pointing out that it's quite possible for the IMF to be even worse. Remember, that it's always possible to make things worse. (Better and worse are both changes.)
    - christofd 18y ago
      Well, I was hoping for a fresh outside perspective. We here in the U.S. have been shafted for so long that we've got 'Stockholm Syndrome'. It's time for some wrath - nothing better than an institution that deals with 3rd world dictators to call out breaches of law. You could call it 'ethical awareness' that an outside perspective can contribute. Granted, given actual policy, the U.S. situation is unique and therefore the IMF's experience might not directly apply, e.g. I don't think that too many developing nations failed because of 'credit default swaps'. However, many bankers currently (and in the past) are in policy positions, and suddenly the lessons from corruption and aggregation of power in 3rd world countries apply.
      - anamax 18y ago
        > It's time for some wrath - nothing better than an institution that deals with 3rd world dictators to call out breaches of law. The IMF doesn't "deal with" 3rd world dictators or "call out breaches of law". > You could call it 'ethical awareness' that an outside perspective can contribute. And you could call it a pony for all the good it would do. "Outside" doesn't tell you anything about the value of a perspective. > However, many bankers currently (and in the past) are in policy positions, and suddenly the lessons from corruption and aggregation of power in 3rd world countries apply. If you're arguing that "IMF bankers will fix things", you're ignoring the fact that IMF bankers are what got us into this and we're currently using IMF bankers. (Guess where the current treasury secretary used to work.) If you're arguing that the IMF is used to dealing with corrupt bankers, you're simply wrong. And, if you're arguing that the US has problems because of corrupt bankers, you don't know anything useful about said problems. > Well, I was hoping for a fresh outside perspective. Hope is not a plan. Change is not necessary good. And an outside perspective isn't necessarily relevant. (Different can be good or bad.) And, it's not "fresh". > We here in the U.S. have been shafted for so long that we've got 'Stockholm Syndrome'. One of the symptoms is grasping at anything, without regard for whether it actually helps or is even relevant. So, to end on a positive note, it's likely that you've accurately explained why you're thrashing around uselessly.

kqr2 18y ago

This reminds me of a recent HN thread : How Rich Countries Die http://news.ycombinator.com/item?id=518776 http://news.ycombinator.com/item?id=518776 Over time special interest groups work to reduce a society’s efficiency and GDP by enriching themselves -- in this case it's the financial industry. Another common idea is regulatory capture: http://en.wikipedia.org/wiki/Regulatory_capture http://en.wikipedia.org/wiki/Regulatory_capture Regulatory capture is a term used to refer to situations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating. The SEC and other government posts like the Secretary of Treasury are unduly influenced by the finance industry. In fact, as the article points out, those government positions are often filled with alumni from the finance industry.

rjurney 18y ago

I don't know what else to say about this article except that it is the finest explanation of the banking crisis that I have yet encountered. Seriously, this is a must-read for everyone. Sobering.

jonnycoder 18y ago
Rolling Stone has an outstanding article explaining the current crisis. I think you'll love it: http://www.rollingstone.com/politics/story/26793903/the_big_takeover/ http://www.rollingstone.com/politics/story/26793903/the_big_...
fatjonny 18y ago
I enjoyed the article. I also enjoyed looking through their blog (which is mentioned at the bottom of the article pages). It seems like a good place to get an easy to understand analysis of the banking crisis news. http://baselinescenario.com/ http://baselinescenario.com/

berntb 18y ago

I think the banking crisis was milder in Sweden because of the handling of the crisis in the beginning of the 1990s. Then, the shareholders of the Swedish banks were hurt to save the banks, so the banks knew they would not get _free_ money from the state in the next crisis (which makes the banks a bit of an exception in Sweden, but that is another discussion.) After reading the article, it seems both more complex and simpler than that. Really good.

cousin_it 18y ago

Here in Russia a lot of people sighed freely some years ago when our debt to the IMF finally was repaid, early and in full. The organization has a very bad name here for advocating drastic reforms that led to social shock and, yes, many deaths. It might be more a fault of our own government, but still it feels better to be debt-free.

rjurney 18y ago
The man speaks so much sense that its easy to forget IMF/WB/USAid debacles in eastern Europe. Even under his watch?

biohacker42 18y ago

The us will get through this, a year, or two, probably not 3, from now we'll start growing again and get high inflation. Then the fed will raise rates to kill inflation, economic growth will slow down to a crawl and we'll begin paying off our debts. This will last 10 to 20, just like Japan.

asmithmd1 18y ago
exactly right. And the system will be the same as before - nothing will have been done to address the heart of the problem - banks that are "too big to fail". Anything that is too big to fail is just too big. We have successfully broken-up companies that were too big before - AT&T comes to mind. Do you think we would have an open internet if one company controlled all access to long distance communication like AT&T did before 1984? http://en.wikipedia.org/wiki/Bell_System_divestiture http://en.wikipedia.org/wiki/Bell_System_divestiture
- randallsquared 18y ago
  Entities that are that big have big lobbies. Big lobbies give effective control of governing bodies (at least, in their limited scope); this is known as regulatory capture. AT&T was broken up by judge, not by Congress, so it is not a good counterexample.
  - silentOpen 18y ago
    I don't think the parent cares how AT&T was broken up. Why not break up financial institutions through the judiciary? Oh, because the anti-trust laws are crippled...

Xichekolas 18y ago

> Yet the principal characteristics of the government’s response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector. The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary. Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC intervention is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse. Finally someone said it, and better than I ever could have.