Business

Last updated: 14 september, 2009 - 16:46 GMT

Bankers on the Brink

About this programme by Peter Day

A torrent of programmes and articles this month marking the first anniversary of the moment in 2008 when the financial credit crunch became a global business crisis.

Global Business could not entirely be left out of the rush, so I turned to Simon Johnson for some insights into what happened a year ago, and how it is still affecting us.

Professor Johnson, British born and educated, is now professor of entrepreneurship at the Sloan School of Management at Massachusetts Institute of Technology, and a senior fellow of the Peterson Institute for International Economics in Washington DC.

But in 2007 and 2008 he was chief economist at the International Monetary Fund, and he is familiar with the kind of economic nervous breakdowns that send nations scuttling along to the Fund with requests for help.

They normally get financial assistance in the form of stabilising loans, but at some cost: stiff reform programmes that stabilise their economies at the cost of civil disquiet.

The IMF becomes a local kicking horse for the health measures such as reducing public spending that countries have been reluctant to do on their own behalf. Suddenly, it was the great big economies who were in trouble... too much trouble for the IMF to be much use.

There are many academics in the USA who seem to relish public debate about their areas of expertise, and they spend much time writing newspaper columns and daily blogs. Simon Johnson is a blogger, cofounder of baselinescenario.com which tries to elucidate the current upheavals of economics in accessible terms and generates masses of fairly informed comment.

Consequences

And more than a million readers have now downloaded an article he wrote in the May issue of the American magazine Atlantic exploring how investment banks and bankers have systematically managed to capture much of the American economic and regulatory system over the past 30 years..rather like the “military-industrial” complex that President Eisenhower warned about in his farewell speech to the nation in 1961.

As in Russia, Wall Street’s own oligarchs have too much power and influence, and they have been blocking reform.

Updating that article, Professor Johnson tells me that he is now less fearful than he was then that the current recession will be worse than that of the 1930s, because of the impact of the emergency spending measures taken over the past year.

But his fears about the power and influence on government and regulators of the bankers have not been lessened, and it is more than just the big fat bonuses which get so much attention.

What politicians gathered at summit conferences have to deal with now is not just the factors that led to the credit crunch bubble and its bursting, but also the consequences of the emergency measures they took to bail out the system.

We got into trouble because banks had become Too Big to Fail..but to rescue them from failure we have created even bigger banks which if nothing changes will fail with even more damage than their predecessors. Something wrong there..and dangerous.

As Simon Johnson explains.

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Previous updates - September

August

  • Peter Day asks whether the credit crunch crisis creates a big opportunity for women.

  • Peter Day finds out how to make money out of commodities in the developing world.

  • Peter Day looks at the new communications methods that are changing the way firms do their training.

July

June

  • Peter Day finds out how to innovate your way out of an economic downturn.

  • A sense of time and place is changing Internet businesses everywhere.

  • Social entrepreneurs from Lebanon, Palestine and Egypt who are all innovating and confronting poverty in new ways.

  • A look at a hugely successful childrens TV series and it's boss Magnus Scheving.

  • No business school has a more daunting image than Harvard, 100 years old last year.

May

  • Intel is going to appeal against both the judgement that it broke European Union monopoly rules and an eye-watering fine.

  • Men got us into this current economic mess, maybe women can get us out of it.

  • An entrepreneur's thoughts on a way of weaning motorists off their reliance on oil.

  • The industry that changed the world – the US automobile business – is in deep trouble. Peter Day finds out why.

April

  • A look at the edges of Europe and asking whether joining the EU, or in the case of Iceland wanting to, was worth it?

  • A look at the edges of Europe and asking whether joining the EU, or in the case of Iceland wanting to, was worth it?

  • A look at the edges of Europe and asking whether joining the EU, or in the case of Iceland wanting to, was worth it?

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