From: Simon Johnson
To: John Talbott
Subject: Re: Taking Back the Country
I admire your energy and focus in trying to mobilize a broader cross section of people against the big banks in particular and the way our political-financial system operates in general. I'm sure this is worthwhile and not at all a waste of time. Any efforts you or others put into educating people -- or enabling people to better educate themselves -- will surely pay off over time.
However, my sense of the political cycle around these issues is perhaps a bit different from yours. On the first round -- the crisis, immediate policy response and first-round "reform" efforts -- the big bankers have definitely won.
You were right when you argued way back that it would take a crisis before anyone really understood that we have a problem. But even so, most people still do not fully understand what has happened to them over the past 12 months -- and why their future taxes will be so much higher. I spend quite a lot of time talking to relatively well-informed people. After an hour or so of intense discussion and argument, I would say that most people see much more clearly just what the big banks got away with, although they do not necessarily agree with the idea of stricter regulatory controls on those banks. Left to their own devices, or just relying on the usual sources, I'm not sure how clear any of this is to most people.
And I worry that e-mailing friends doesn't necessarily engage people at the necessary level. You need repeated reinforcement of the key themes -- and a lot of back and forth with people you trust -- to really change minds on something this big. Or, as you say, you need to see it again and again, and perhaps you need to worry about the consequences for your own well-being.
If the big banks could just lie low for a while, I honestly think they would get away with everything -- the backlash would fade, and we'd be setting ourselves up for another massive crisis down the road.
Fortunately (in a sense), the banks cannot back off from their most egregious behavior. Perhaps this is in their DNA; definitely it is in their organizational culture and how they see the world -- the people who run the biggest financial institutions really think they are the masters of the universe and are proceeding on that basis.
Their profits, their wages, their bonuses, and their behavior have begun to antagonize people greatly. Already, some of my contacts who are close to the administration wince at the latest news from the financial sector, be it the bonuses that were paid last year to senior people who oversaw major mistakes (some of whom are now rewarded with senior policy roles!) or the blatant bragging about political influence that some CEOs are now making public.
And even if some sensible people at these banks would like to rein in employee compensation to more moderate and reasonable levels, they have a problem. If you lower the wages for your people, another bank -- perhaps one based in Europe -- will hire them away with a crazy package. The rat race, across companies and between people, means that this can only be curtailed through regulation. But the survivor banks are so strong politically that they will defeat all meaningful regulation for compensation.
This very success makes them more vulnerable to further criticism and backlash.
I'm not saying that the banks will simply commit political suicide. Nothing is ever so simple. But they will likely undermine themselves with Congress and eventually even with the administration. The midterm elections in 2010 and the presidential election in 2012 could well be very much about restricting the power of the big banks.
American democracy does not get on well with overweening unelected individuals who pretend to great power. Andrew Jackson saw off Nicolas Biddle in the 1830s. Teddy Roosevelt stood up to -- and eventually towered over -- even J.P. Morgan at the beginning of the 20th century. And FDR remade everything in the 1930s.
As I said before, I'm optimistic that President Obama can do the same. The challenge to democracy is palpable and growing. The fact that two -- and only two -- big banks came through the crisis unscathed is a perfect symbol of the problem. In the past, part of the myth of Wall Street was that it was competitive, that many could enter the industry, and that its political power was not too concentrated. This myth, among many, has now exploded.
We see the power for what it is. Mainstream media increasingly picks up the story line. And still the big banks cannot step back and curtail their most troubling activities.
Keep explaining and let the big banks provide the supportive evidence you need.