A year after the biggest bailout in US history, Wall Street lobbyists don't just have influence in Washington. They own it lock, stock, and barrel.THIS STORY IS NOT ABOUT THE origins of 2008's financial meltdown. You've probably read more than enough of those already. To make a long story short, it was a perfect storm. Reckless lending enabled a historic housing bubble; an overseas savings glut and an unprecedented Fed policy of easy money enabled skyrocketing debt; excessive leverage made the global banking system so fragile that it couldn't withstand a tremor, let alone the Big One; the financial system squirreled away trainloads of risk via byzantine credit derivatives and other devices; and banks grew so towering and so interconnected that they became too big to be allowed to fail. With all that in place, it took only a small nudge to bring the entire house of cards crashing to the ground.
But that's a story about finance and economics. This is a story about politics. It's about how Congress and the president and the Federal Reserve were persuaded to let all this happen in the first place. In other words, it's about the finance lobby—the people who, as Sen. Dick Durbin (D-Ill.) put it last April, even after nearly destroying the world are "still the most powerful lobby on Capitol Hill. And they frankly own the place."
But it's also about something even bigger. It's about the way that lobby—with the eager support of a resurgent conservative movement and a handful of powerful backers—was able to fundamentally change the way we think about the world. Call it a virus. Call it a meme. Call it the power of a big idea. Whatever you call it, for three decades they had us convinced that the success of the financial sector should be measured not by how well it provides financial services to actual consumers and corporations, but by how effectively financial firms make money for themselves. It sounds crazy when you put it that way, but stripped to its bones, that's what they pulled off.
There's more to say about how they accomplished this, but to understand just how extravagant the finance lobby's power is, you need to understand some background first. There are a lot of places we could start: the election of Ronald Reagan and the beginning of the great era of financial deregulation. The collapse of Continental Illinois National Bank and Trust in 1984. The $100 billion bailout of the savings and loan industry. The Mexican crisis of 1994. The Asian crisis of 1997. But for our purposes, the best place to start is 1998. That was the year a hedge fund called Long-Term Capital Management imploded and very nearly took the global financial system down with it. It was, if you will, a dry run for 2008.
The Warning
At the time it was founded, LTCM was the biggest, most prestigious hedge fund ever created. The brainchild of John Meriwether, former head of bond trading at Salomon Brothers, it had two future Nobel Prize winners as partners, a staff of virtuoso traders and brilliant mathematicians, $10 million worth of fancy engineering workstations, and an initial capitalization somewhere north of $1 billion. It was the largest start-up hedge fund in history.
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http://motherjones.com/politics/2010/01/wall-street-big-finance-lobbyists
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