First, Simon Johnson is a former chief economist at the International Monetary Fund, now teaching at MIT’s Sloan School of Management. James Kwak is a former management consultant at McKinsley & company, co-founder of the successful software company, Guidewire, and presently studying law at Yale Law School. Together Johnson and Kwak run the economic website BaselineScenario.com. To boot, they have written a new best seller, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.
The big ideas that emerge from the title of their interview are that financial regulators are not enough to deal with the Big Six banks, whose employees are very smart people, very hungry for financial opportunity, legit or not legit. Thus, very often regulators are sucked into large investment banks or affiliated financial institutions like the distinguished Michael Oxley, co-author of the Sarbanes Oxley Act. Oxley has joined the financial industry, along with some 124 former other members of Congress and their aides.
To Oxley’s undying credit, the Sarbanes-Oxley Act grew out of the debacle of Enron and made it a law that CEOs and other top managers were and are responsible for the policies and actions of their companies on their watch and can’t just shrug their shoulders, saying they didn’t know what was happening. What Johnson and Kwak are really calling for are more laws on the books that can safeguard against financial abuse.
Unfortunately, we have, as they point out, former Clinton Treasury Chief Robert Rubin now getting $100 million a year to consult for Citibank and he can’t explain how the company came so incredibly close to financial collapse. Yet, when Newsweek wanted someone of note to explain all this, the job was given to, guess who, Robert Rubin. Suddenly, he found religion?
Charles Prince, another former Citi CEO said: “Let me start by saying I’m sorry. I’m sorry that our management team, starting with me, like so many others, could not see the unprecedented market collapse that lay before me.” He must have seen it for years before that if he wasn’t blind or deaf, because it was reported on Internet news services at the very least, particularly Citi’s huge derivatives debt.
Both Rubin and Prince were accused by Democratic Chairman of the Bipartisan Financial Enquiry Committee Phil Angelides, “of either pulling the levers or being asleep at the switch.” This writer’s money is on pulling the levers.
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