Blog on the Run: Reloaded

Tuesday, April 7, 2009 9:18 pm

“Becoming a banana republic”

Filed under: We're so screwed — Lex @ 9:18 pm
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Simon Johnson, a former chief economist of the International Monetary Fund, says that where oligarchy is concerned, there’s no such thing as American exceptionalism:

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

The former chief economist of the International Monetary Fund may seem an unlikely person to be suggesting that the U.S. financial system be overhauled and its influence weakened … but then he has seen that work in other countries, so who knows?



  1. It’s complicated, but there is an irony worthy of suspicion here with these comments coming from an economist from the IMF.

    It was the IMF that created (or greatly contributed to) the troubles of Russia, Argentina, South Korea and Malaysia. It may not change the outcome for us if the bottom line — a country’s financial system unable to pay its debts — remains the same. But the current situation in the U.S. is not exacerbated, as it was in the above examples, by the IMF’s use of lending to bludgeon those countries into privatizing state-owned assets and liberalizing foreign ownership laws. Lending was manipulated to twist arms in those emerging markets. I don’ think we are in the same situation. Read Naomi Klein’s “The Shock Doctrine” for more.

    Comment by Roch101 — Wednesday, April 8, 2009 7:25 am @ 7:25 am

  2. I understood him to be saying that the situation of the U.S. is approaching those of the other countries he’s talking about, NOT that the standard IMF mode of work is the appropriate response. In fact, I read into his piece a tacit admission that that standard mode of work may indeed be exacerbating problems rather than solving them.

    But I could be wrong.

    Comment by Lex — Wednesday, April 8, 2009 8:32 am @ 8:32 am

  3. What I was trying to say is that the warning of oligarchies may not be so dire because it was more the IMF’s own policies, rather than oligarchs, that caused the financial difficulties in those emerging markets and that, since the IMF is not involved in bailing us out (even though we may also have our oligarchs) I don’t think I buy his case that we are on a similar trajectory.

    Comment by Roch101 — Wednesday, April 8, 2009 5:33 pm @ 5:33 pm

  4. Oh. OK, gotcha.

    Comment by Lex — Wednesday, April 8, 2009 5:59 pm @ 5:59 pm

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