In Faceoff With Banks, "The Government Has Blinked"

Economist Simon Johnson, in an interview Friday on "Bill Moyers' Journal [1]," makes the case for why the nation needs a tough, independent inquiry into the financial crisis similar to the Pecora Commission of the 1930s.

"Everyone is worried about the disproportionate power in the hands of a relative few financial big players," said Johnson, the former chief economist of the International Monetary Fund and a professor at MIT Sloan School of Management. That was at the core of the investigation Ferdinand Pecora led for the Senate Banking Committee to expose the corruption that led to the Great Depression, "and that's what we've come back to today."

Johnson was joined in the interview by Michael Perino, a St. John's University law professor who is writing a book on the Pecora hearings. He blogged about the Moyers interview on Baseline Scenario [2]:

Bill has a great sense of timing. On Wednesday night the Senate passed, by a vote of 92-4, a measure that would create an independent commission to investigate the causes of our current economic crisis; we taped our discussion on Thursday morning. In the usual format of Bill’s show, a segment of this kind would be 20+ minutes, but I believe that tonight our conversation will occupy the full hour (airs at 9 p.m. in most markets; available on the web [1] from about 10 p.m.).

Speaker Pelosi has also come out in favor of some sort of commission, so there is momentum (and detailed negotiations). But many big questions are still on the table, including: what should be the scope of an enquiry, will it have subpeona powers, and who will run it? And how exactly should we consider benchmarking this against the Pecora Hearings?

During the interview, Johnson is dismissive of critics on the right who say that the Obama administration is actiing like a "king" controlling the economy. Quite the opposite, Johnson says: "The banks have control of the state." All one has to do is look at the Obama administration's track record so far in changing the shape and behavior of Wall Street institutions; in the face-off between Wall Street and government, Johnson concludes, "the government has blinked."