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I’m sure it is as obvious to everyone else as it is to me that the financial system is being treated so generously by the US government because, essentially, the US government is full of elected officials and policy makers who have been bought, groomed, trained, brainwashed, etc. by the financial industry. When an industry produces 40% of corporate profits, as did the financial system at its peak a few years ago, it has along the way gathered unimaginable political connections and power. The continuing failure of even the reformist, populist administration of President Obama to do the obvious with respect to the banks testifies to the enormous span and depth of their power.

Simon Johnson, a very senior American academic and policy person, who among other positions was until recently director of research for the International Monetary Fund, has a very insightful article on taking on the oligarch’s of the banking system. A few key excerpts, with a link to the whole article are below the following paragraph.

Mr. Simon has also written  several other recent articles reporting on inside struggles on the Administration policies toward the banking system. As I said in a previous post, I took comfort in the vagueness of Geithner’s recent "plan," considering an indication of ongoing internal struggles. Mr. Simon reports that David Axelrod and Rahm Emmanuel have been strong proponents of tougher action. So far they haven’t entirely prevailed, but I’m certainly glad to have them on our side. I wouldn’t bet against them. This is good news! Here are links to Mr. Simon’s recent articles:

• Axelrod And Emanuel Were Right (On The American Bank Oligarchs), Feb. 11, 2009

• Rahm Emanuel’s and David Axelrod’s New Dilemma, Feb 12, 2009

• Robbery Note – From The Banking Oligarchs This Morning, Feb. 12, 2009

Below is the article referred to in the second paragraph above:

From the RGE Monitor

High Noon: Geithner v. The American Oligarchs

Simon Johnson | Feb 9, 2009

There comes a time in every economic crisis or, more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that – they say – will deliver you back to growth.  The person has political support, a strong track record, and every incentive to enter the history books.  But one nagging question remains.

Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?  The form of these vested interests, of course, varies substantially across situations, but they are always still strong, despite the downward spiral which they did so much to bring about.  And fully escaping the grip of crisis really means breaking their power…

The elites who run the US banking industry have had a great run of economic good fortune.  They used this wealth to further strengthen their political power, both through donations to politicians of almost all stripes and more broadly through taking positions of formal and informal influence throughout the executive and legislative branches…

Ending the financial crisis is relatively straightforward – a forced recapitalization and change of ownership/management in the banking system – although this will not immediately lead to an economic recovery (more on that here).  But seen in deeper political terms, decisive action to restructure large banks is almost impossible.  Such action would require overcoming perhaps the single strongest interest group in the United States today.

How can you do it?  The answer must be by splitting this powerful interest group into competing factions, and taking them on one by one.  Can this be done?  Definitely, yes.  In particular, bank recapitalization – if implemented right – can use private equity interests against the powerful large bank insiders. Then you need to force the new private equity owners of banks to break them up so they are no longer too big to fail.  And then… there is always more to do to contain the power of a lobby that is boosted by any boom and which, the more it succeeds, the more likely it is to ruin us all.

Full Article