It's the Economy - April 13, 2010

An amazingly entertaining, often funny and always horrifying story of  what went wrong on Wall Street and why.

What Lewis writes of two of his characters, young Ledley and Mai, might just as well apply to Lewis himself, or to us: They "had always sort of assumed that there was some grown-up in charge of the financial system whom they had never met; now they saw there was not."

When the crash of the U. S. stock market became public knowledge in the fall of 2008, it was already old news. The real crash, the silent crash, had taken place over the previous year, in bizarre feeder markets where the sun doesn't shine, and the SEC doesn't dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can't pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren't talking. The crucial question is this: Who understood the risk inherent in the assumption of ever-rising real estate prices, a risk compounded daily by the creation of those arcane, artificial securities loosely based on piles of doubtful mortgages? Michael Lewis turns the inquiry on its head to create a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to his #1 best-selling Liar's Poker. Who got it right? he asks. Who saw the real estate market for the black hole it would become, and eventually made billions of dollars from that perception? And what qualities of character made those few persist when their peers and colleagues dismissed them as Chicken Littles? Out of this handful of unlikely - really unlikely - heroes, Lewis fashions a story as compelling and unusual as any of his earlier bestsellers, proving yet again that he is the finest and funniest chronicler of our times.

The authors argue that breaking up the oligarchy of the megabanks that control 60% of our GDP is essential to avoiding another financial meltdown.  They hold the global economy hostage.  An account of our financial history with issues that date back to Thomas Jefferson.

This month's HuffPost Book Club selection is Simon Johnson and James Kwak's 13 Bankers, which convincingly argues that breaking up America's big banks is essential to avoiding another cycle of heady boom followed by devastating bust. Unfortunately, while the Obama administration is giving lip service to too-big-to-fail issues, actually ending too-big-to-fail is not currently on the table in Washington. But it needs to be placed there. In the face of public pressure, the White House took a stronger position on financial consumer protection than it might otherwise have done. The same pressure needs to be applied when it comes to the megabanks. I'm told that lots of copies of 13 Bankers are making their way around Capitol Hill. Even Chris Dodd says he is reading it. This could be the rare book than can actually have an impact on the vital debate happening right now in Washington.

Even after the ruinous financial crisis of 2008, America is still beset by the depredations of an oligarchy that is now bigger, more profitable, and more resistant to regulation than ever. Anchored by six megabanks - Bank of America, JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley - which together control assets amounting, astonishingly, to more than 60 percent of the country's gross domestic product, these financial institutions (now more emphatically "too big to fail") continue to hold the global economy hostage, threatening yet another financial meltdown with their excessive risk-taking and toxic "business as usual" practices. How did this come to be - and what is to be done? These are the central concerns of 13 Bankers, a brilliant, historically informed account of our troubled political economy.
 
In 13 Bankers, Simon Johnson - one of the most prominent and frequently cited economists in America (former chief economist of the International Monetary Fund, Professor of Entrepreneurship at MIT, and author of the controversial "The Quiet Coup" in The Atlantic - and James Kwak give a wide-ranging, meticulous, and bracing account of recent U.S. financial history within the context of previous showdowns between American democracy and Big Finance: from Thomas Jefferson to Andrew Jackson, from Theodore Roosevelt to Franklin Delano Roosevelt. They convincingly show why our future is imperiled by the ideology of finance (finance is good, unregulated finance is better, unfettered finance run amok is best) and by Wall Street's political control of government policy pertaining to it.
 
As the authors insist, the choice that America faces is stark: whether Washington will accede to the vested interests of an unbridled financial sector that runs up profits in good years and dumps its losses on taxpayers in lean years, or reform through stringent regulation the banking system as first and foremost an engine of economic growth. To restore health and balance to our economy, Johnson and Kwak make a radical yet feasible and focused proposal: reconfigure the megabanks to be "small enough to fail."
 
Lucid, authoritative, crucial for its timeliness, 13 Bankers is certain to be one of the most discussed and debated books of 2010.