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Understanding the Financial Mess

If you are like most people, you don't really understand the financial mess that we are all in.  If you have been trying to understand it, chances are you've heard an interview with Simon Johnson.  Simon is really smart, but is able to explain things in very clear terms.

He has a website (Baseline Scenario) dedicated to the financial crisis that explains it all in as much or little detail as you'd like.  And, yesterday Simon was on Fresh Air with Terry Gross again, talking about what to do about banks that are too big to fail.  Here's a quote:

"We face at least two major, interrelated problems," Johnson writes. "The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support."

Johnson talks about how Goldman Sachs, now that it is doing better financially, can really challenge the Fed and Treasury.  If a bank like Goldman gets healthy in advance of others, they can operate independently and take advantage of weaker competitors.  That sounds like good ol' capitalism, but Johnson describes why that may not be good for us all until the whole sector gets stronger.  I don't know if I agree with his call to nationalize all the banks for the short-term, but his description of Goldman standing up to the Fed and Treasury is a little scary in light of how fragile our situation is.


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