Last Friday, Bill Moyers of PBS had an interview with the former chief economist of the IMF, and current MIT Sloan School of Management professor Simon Johnson. In my lights, it is the most powerful critical analysis of the U.S. government’s responses to the financial crisis (or, at least the most powerful to have been featured in the mainstream media).
Here is a crucial part of the exchange:
“BILL MOYERS: Both the “Wall Street Journal” and “The New York Times” reported this week that Obama’s top two political aides, Rahm Emanuel and David Axelrod, have pushed for tougher action against the banks. But they didn’t prevail. Obama apparently sided with Geithner and the Treasury Department in using a velvet glove.
SIMON JOHNSON: What I read from that is that there is an unnecessary and excessive deference to the experts, or the supposed experts…
There are many fine professionals at Treasury with great experience, who have spent their lives working on important issues related to the United States. What we face right now is not a typical U.S. issue. We face a crisis, and the president said this on Monday night, the president said, President Obama said, “We’ve never seen anything like this since the Great Depression.”
Therefore, nobody working now, you know, has any firsthand experience. And he also said, “We may face what we call a lost decade.” We’ve never seen that anywhere other than Japan in the 1990s, right? …
The correct people you should be asking this question to are people at the IMF. And I can tell you what they’re saying is the policy that we seem to be perusing, of being nice to the banks, is a mistake. The powerful people are the insiders. They’re the CEOs of these banks. They’re the people who run these banks. They’re the people who pay themselves the massive bonuses at the end of the last year. Now, those bonuses are not the essence of the problem, but they are a symptom of an arrogance, and a feeling of invincibility, that tells you a lot about the culture of those organizations, and the attitudes of the people who lead them…”
The interview insinuates that political donations may be at the root of Congress’ deference. While plausible, the presentation makes the insinuation appear as idle speculation.
I find the interview particularly interesting because it appears that the public clamour over the crisis is really beginning to increase. As job losses mount, politicians will sense the building pressure and feel compelled to respond. And if we follow Johnson’s reasoning, it is possible that our experts are currently ill-equipped to craft an expedient plan.
Given this uncertainty, I’m concentrating my research energies on companies with the widest of moats, the smallest of debts, the very highest returns on equity, and the richest cash flows. To my disappointment, that will likely mean leaving some potentially interesting investments behind.