It's time for a putsch. Not against the government – against Wall Street. And who should lead this overthrow? We, the people; our government, the government of the United States. There are many people who would say, to put it simply, nationalize the banks, now.
Today's announcement by the government that they may convert their bailout investments into equity shares takes us a step closer. As we watch banks with surprising news of quarterly profits trying to flee from the Treasury's rescue plans as quickly as possible, it's clear that they will do anything to avoid control. Yet there are great concerns about whether the profits reported are just accounting charades and one more example of financiers looking at short-term results while failing to think about long-term consequences.
No one appointed the denizens of Wall Street rulers of the country – they staged a coup and took over. Wall Street's mathematical wizards helped their overlords stage this takeover; as long as investment banks, hedge funds, private equity firms and other financial service firms threw enough of their ill-gotten gains to politicians right and left, they got their way. We are ruled not by elected officials, but by masters of money, czars of cash, dictators of the dollar. Elected officials for the better part of three decades have been nothing more than the handmaidens of capital in search of free markets, unfettered by ethics or social values.
Unfortunately, when their grand schemes for personal aggrandizement caused a global economic meltdown, these ruling clans proved to have more a sense of entitlement and arrogance than common sense. They still hold the keys to the safe deposit box, and promise that as soon as we let them take whatever they need, they will make more money and give us the rest. Politicians who are beholden to them still believe, or profess to believe this. It's true as Senator Chris Dodd says that we need to think carefully about how to regulate the financial sector. It's also possible that the real effect when money-craving legislators are done will be to capitulate to Wall Street's demands for continued deregulation and autonomy in the hope that they will deliver profits and recover the wealth we have lost.
Simon Johnson, former chief economist at the International Monetary Fund, calls what Wall Street has done "The Quiet Coup." Johnson is now a professor at MIT's Sloan School of Managements; he says that from time to time it is necessary to pick winners and losers among the oligarchs who live believing that ordinary citizens owe them a living because they create jobs, or housing, or weapons for defense of the homeland and as an export product. What is lacking in current fiscal policy is the will to push out some of the oligarchy; the will to winnow the elites and create new conditions for success.
The IMF is currently angling to become the dominant manager of a world economy, free of ideology that promotes its past insistence on free-market solutions to the exclusion of other problem-solving approaches. In the new IMF, sometimes privatization will work; at other times, nationalization may be the answer. What Johnson fears is that a country such as the United States will use its power and dominance to avoid taking good advice and swallowing bitter medicine. Yet when the IMF is poised to give China a larger stake in managing global economics, the irony is rich – the United States, a debtor nation, may need some of the $40 billion in foreign reserves that China would pump into the IMF. We already find our international policy choices constrained by the need to manage relations with our creditors.
Paul Krugman, a Nobel-prize winning economist, professor at Princeton, and New York Times columnist, is dancing around the idea of nationalizing banks. We all know that the very word "nationalize" evokes the blistering retort of "socialism" from reactionaries who are part of the very elites that would be overthrown by such an action, or by their comic conservative mouthpieces. Krugman, in an effort to maintain his credibility as a reasonable man, only suggests that by the time we realize that nationalization was the right thing to do it may be too late to do it. He is afraid that we will spend all our money on tepid reform measures and then, when the real crisis hits, have no money or credit left. Johnson and Krugman together in a bar? Last call.
Meanwhile, Harold Meyerson says that Rush Limbaugh and his ilk are helping the rise of socialism in the United States. He cites a new Rasmussen Poll that shows support for capitalism dwindling among all Americans; today only 53 percent prefer capitalism (it used to be 70 percent), while 47 percent are undecided or prefer socialism. The numbers among those under 30 are even more striking: supporters of capitalism, socialism and the undecided each make up roughly one-third of the electorate. So when Rush Limbaugh and the Republican elders rant about socialism, Meyerson says that they are first, preaching to the shrinking conservative choir, and second, giving socialism unprecedented publicity. Socialists couldn' t afford to buy the airtime they are getting from right-wing reactionaries. Rush & Co. in concert with greed on Wall Street are building a mass audience for the socialist message more quickly than they have ever been able to do on their own.
Finally, Naomi Klein suggests that in the spirit of "Spring Cleaning" one of the first members of the elite to be banished should be Larry Summers, President Obama's chief economic advisor. He's been spectacularly wrong about nearly everything, Klein argues, but because we're intimidated by his intelligence and his overbearing manner, he continues to move ahead like a steamroller pounding down pavement. His arrogance is exemplified by an analogy he made back in the 1990s, when he said that "the laws of economics are like the laws of engineering, one set of laws works everywhere." It's a telling remark that reveals how the brightest among us can bamboozle everyone. Who really understands economics? Who really understands engineering, let alone the laws of physics at the core of making things that work? Not many; so if you put the two mysteries together you've got an unassailable air of authority.
The rub is that there aren't "laws of engineering" no matter what Larry Summers says. Engineering is an applied discipline that relies on fundamental laws of physics – motion, gravity, thermodynamics, among others. Economics is a social science – and once you get people and politics in the mix, all bets are off. For example, one of the primary "laws" of economics states that human beings are rational actors (as long as you assume, as economists always do, that "all else remains equal"). Yet psychological research shows that humans act contrary to their own economic interests much of the time, because, in the real world, nothing always remains equal and people don't understand the math of what is in their best interests. So much for Summers' certitudes – and to put Klein's argument succinctly: why are we still listening to him?
Perhaps President Obama's dream team led by Summers and Tim Geithner is too close to Wall Street, a criticism many have made. Obama deserves great credit for seeking out the best and the brightest, for seeking bipartisan solutions, for using his skills as a community organizer and conciliator to find common ground wherever possible as we face problems of global scope with huge risks. But if the young and the racial and ethnic minorities in the U.S. find themselves without a future because the mandarins of money prevail, if the financial elites and politicians hold onto their privileged positions but do not deliver results for the folks on "Main Street" and in rural America, a different kind of putsch may occur.