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The End of American Exceptionalism 

By       Message Craig Harrington     Permalink
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Simon Johnson, writing for The Atlantic Online, puts forth the argument that America's economy has developed the profile of an oligarchic third world country.  We have allowed the lines between private banking and public government to be blurred to such a degree that Washington essentially works for the benefit of Wall Street.  The money and power accumulated by the financial sector has had such an effect on the government, its policies and both parties, that in this time of dire crisis they are overlooking every other problem with this economy for the sake of the banking industry.

This is precisely what one could expect to see in developing economies like Russia, Argentina, Eastern Europe, or Southeast Asia.  A system dominated by rich elites for their own benefit.       

In the case of any other nation in the world the International Monetary Fund would step in and order a clamp down on this corruption.  The IMF would suggest temporarily nationalizing the banks, and then breaking them apart or letting them disintegrate.  And the countries would have to comply, because at that point they are just one step away from a collapse into anarchy.

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The United States, on the other hand, is not a small economy which could be swayed by the IMF.  The United States believes that its economic system is foolproof, and it has ingrained the mentality that what is best for the banks is what is best for the country.  For this reason our government has taken money out of the pocket of every single American citizen, and handed it over to the banks so as to guarantee that they are kept in place.  The United States – in what Johnson equates to a decision reminiscent of the 1990s Kremlin – has agreed to assume private debts with public money, and overpay without blinking.       

Years ago Brooksley Born was laughed out of the "boys club" in Washington when she had the audacity to suggest regulations for credit-default swaps in 1998.  Everyone involved in that hearing – Alan Greenspan, Paul Rubin, Arthur Levitt and presidential economic advisor Larry Summers – regret having not given her the time of day.

Born left her appointment with the Commodity Futures Trading Commission a few months later.  Her reputation with President Clinton was tarnished by run-ins with the powerful banking elite who favored the status quo.       

Born's fight against the Treasury, Fed, Wall Street, and the White House, is only one example that can be taken from several decades of bad policies.  The deregulation begun by the Reagan administration has come full circle, and our battered economy is what we have to show for it. Somehow, instead of cracking down, our government is still pushing policies that favor financials and support the old system.  President Obama has taken steps to regulate troubled banks, but the directives are full of loopholes and are being pushed by a man – Treasury Secretary Geithner – who absolutely harbors pro-Wall Street ideals.

If the United States were any other country, the ridiculous and obvious corruption of our political and financial system would be cause for scorn.  Other governments would deny us funding, and we would be forced to crawl to the IMF asking for a hand out.  In exchange for their help, they would force the U.S. to adopt policies which would blow up the old banking cartels.       

Obviously, the U.S. will not go to the IMF for a loan – in fact we are the biggest lender to that organization – but we would be wise to follow some of the policy directives they have published.  We need to fully nationalize the banks, and allow the weak links to fall apart.  The ones strong enough to survive will need size and compensation limitations, so as to make sure the same thing does not happen again.

This will be costly, the IMF suggests it could cost up to $1.5 trillion to clean up just the banking industry.  However, spending $1.5 trillion to fix the problem is better than what we have done thus far.  We have already spent $1.5 trillion propping up the crumbling financial system and have accomplished nothing at all.       

America is not excepted from the rules and guidelines of fiscal responsibility which dictate policies everywhere else in the world.  If we are going to overlook the other glaring problems facing this economy, we might as well put real effort toward actually fixing the financial industry rather than merely continuing old, ruinous policies.

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http://www.economyincrisis.org/
Craig Harrington is pursuing a degree in History and Political Science at The Ohio State University. He is also a journalist for EconomyInCrisis.org.

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