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Simon Johnson and Rep. Marcy Kaptur
Wall Street
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October 9, 2009

One year after the near-collapse of the U.S. financial system, the crisis seems to be over for the banks. No one expects any of the remaining huge banks to collapse, and a few large firms — JPMorgan Chase & Co., Goldman Sachs Group and Wells Fargo — are expected to post another quarter of billion dollar profits.

But according to guests on BILL MOYERS JOURNAL, ordinary Americans have little reason to celebrate the better fortunes on Wall Street. Simon Johnson, professor of Global Economics and Management at MIT's Sloan School of Management, and Representative Marcy Kaptur (D-OH), explain to Bill Moyers that the outlook for the rest of America isn't so rosy. Not only are many Americans still suffering the collapse of the housing market, they say, but Congress and the president haven't made the changes needed to prevent a much worse catastrophe sometime in the future.

To highlight the disparity between bailing out the banks and helping homeowners, Rep. Kaptur points to her district, where she sees one of the now-profitable banks not doing enough to help struggling borrowers:
Let me give you a reality from ground zero in Toledo, Ohio. Our foreclosures have gone up 94 percent. A few months ago, I met with our realtors. And I said, "What should I know?" They said, "Well, first of all, you should know the worst companies that are doing this to us." "Well, give me the top one." They said, "JPMorgan Chase."
Johnson adds that even bailed-out banks have little incentive to help homeowners:
I'm afraid that it's pretty obvious, and it's very tragic, that they have no interest in helping the homeowners. They make money with what they're doing. They expected a lot of these mortgages they made to default, okay? It was in their models. A high default rate. Now, they didn't expect house prices to come down so much. That's where they got their losses. But they absolutely made these loans expecting they would have to foreclose on people. And figuring they would make money on that.
Too late to reign in the banks?
The problem, Rep. Kaptur and Johnson agree, is that Congress and the Executive Branch didn't sufficiently reign in the banks because the banks have too much power in Washington. Responding to a recent ASSOCIATED PRESS report about Treasury Secretary Timothy Geithner's close ties to a few powerful bankers, Rep. Kaptur said, "Wall Street and Washington is a circuit. And because Mr. Geithner headed the New York Fed, that historic relationship, unfortunately, continues. And it gives them special access and special power to influence policy."

Johnson agrees, arguing that these links are especially beneficial in a time of crisis: "And in a crisis, when everything is up for grabs, you don't know what's going on, the people who will take your phone calls, right, in government and the people who are going to be standing in the oval office, making the key decisions — that's the heart of the system. That's the heart of how you get your agenda through, by changing their worldview."

Rep. Kaptur believes that Congress has also failed to use its power to hold the banks accountable for their actions: "Congress has really shut down. I'm disappointed in both chambers, because wouldn't you think, with the largest financial crisis in American history, in the largest transfer of wealth from the American people to the biggest banks in this country, that every committee of Congress would be involved in hearings? [...] What we're seeing is tangential hearings on very arcane aspects of financial reform [...] rather than hearings on the fundamental new architecture of reforming the American financial system."

And now that the banks have stabilized, they may have successfully prevented any meaningful reform. Johnson explains that "the opportunity for real reform has already passed. And, not only is there not going to be change, but I'll go further — I'll say it's going to be worse, what comes out of this, in terms of the financial system, its power, and what it can get away with."

Representative Marcy Kaptur
Congresswoman Marcy Kaptur (Ohio-9) — who is currently serving her fourteenth term in Congress — is the senior-most woman in the House of Representatives and the longest-serving Democratic woman in the history of the House.

A Polish-American from a working class background, Kaptur was born and reared in Toledo, Ohio and still lives in the same house where she grew up. Her family operated a small grocery store where her mother worked after serving on the organizing committee of a trade union at the Champion Spark Plug Company.

Photo by Robin Holland Congresswoman Kaptur became the first member of her family to attend college and received a bachelor of arts in history from the University of Wisconsin (1968) and a master's in urban planning from the University of Michigan. Trained as a city and regional planner, she practiced 15 years in Toledo and throughout the country before working in the Carter White House as an urban advisor.

Subsequently, while pursuing a doctorate in urban planning and development finance at MIT, she was recruited by the local Democratic Party to run for the U.S. House in 1982. Although outspent by a 3-to-1 margin, she parlayed her deep roots in the blue-collar neighborhoods of Toledo and the rural areas of the district to pull the national upset of 1982.

Congresswoman Kaptur now serves on the House Agriculture, Appropriations, Budget, and Oversight and Government Reform committees as well as the Transportation/Housing and Urban Development (HUD) and Defense subcommittees.

Kaptur recently received the Director's Award from the Edmund A. Walsh School of Foreign Service at Georgetown University for her commitment to increased understanding and appreciation of the peoples and cultures of Eurasia, Russia and East Europe.

She was named the National Mental Health Association's "Legislator of the Year" for her championing mental health and received the 2002 Ellis Island Medal of Honor.

Kaptur is also the author of a book, WOMEN IN CONGRESS: A TWENTIETH CENTURY ODYSSEY, that was published by Congressional Quarterly in 1996.

Simon Johnson
Photo by Robin Holland Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT's Sloan School of Management, a position he has held since 2004. He is also a senior fellow at the Peterson Institute for International Economics in Washington, D.C., and co-founder of a Web site on the global economic and financial crisis, THE BASELINE SCENARIO and "The Hearing," a new economics blog at washingtonpost.com. He is co-director of the NBER project on Africa and President of the Association for Comparative Economic Studies (term of office 2008-09).

From March 2007 through the end of August 2008, Professor Johnson was the International Monetary Fund's economic counsellor (chief economist) and director of its Rresearch department. At the IMF, Professor Johnson led the global economic outlook team, helped formulate innovative responses to worldwide financial turmoil, and was among the earliest to propose new forms of engagement for sovereign wealth funds. He was also the first IMF chief economist to have a blog.

In 2000-2001 Professor Johnson was a member of the US Securities and Exchange Commissions Advisory Committee on Market Information. His assessment of the need for continuing strong market regulation is published as part of the final report from that committee.

Johnson is an expert on financial and economic crises. As an academic, in policy roles, and with the private sector, over the past 20 years he has worked on crisis prevention, amelioration, and recovery around the world, in both relatively rich and relatively poor countries. His work focuses on how policymakers can limit the impact of negative shocks and manage the risks faced by their countries.

Johnson has worked with most of the leading research organizations focused on global economic stability. He remains a Research Associate at the NBER, a CEPR Research Fellow, a BREAD affiliate, a member of the Advisory Group at the Center for Global Development (CGD) in Washington D.C., a member of the International Advisory Board of CASE in Warsaw, and a non-resident Research Fellow at the Asian Institute for Corporate Governance of Korea University. In 2006-07, he was a Visiting Fellow at the Peterson Institute for International Economics in Washington, D.C.

Recent papers have appeared or are forthcoming in THE AMERICAN ECONOMIC REVIEW, THE JOURNAL OF POLITICAL ECONOMY, THE QUARTERLY JOURNAL OF ECONOMICS, THE JOURNAL OF FINANCIAL ECONOMICS, and THE JOURNAL OF FINANCE. He is on the editorial board of THE JOURNAL OF FINANCIAL ECONOMICS, THE REVIEW OF ECONOMICS AND STATISTICS, THE JOURNAL OF COMPARATIVE ECONOMICS, and CLIOMETRICA (a new journal of historical economics and econometric history).

His PhD is in economics from MIT, while his MA is from the University of Manchester and his BA is from the University of Oxford.

Published October 9, 2009.

Guest photos by Robin Holland
Related Media:
Moyers on Banks and Bailouts (stand-alone player)
View our complete coverage of the banking and bailout crisis from early warning from THE NEW YORK TIMES' Gretchen Morgenson in 2007 to date.

William K. Black
The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout. (April 3, 2009)

Simon Johnson, photo by Robin HollandSimon Johnson
Former chief economist of the International Monetary Fund (IMF), MIT Sloan School of Management professor and senior fellow at the Peterson Institute for International Economics, Simon Johnson examines President Obama's plan for economic recovery. (February 13, 2009)

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Bill Moyers talks about the economy and Wall Street's future with Simon Johnson, former chief economist of the International Monetary Fund (IMF) and a professor at MIT Sloan School of Management, and Michael Perino, professor of law at St. John's University and an advisor to the Securities and Exchange Commission. (April 24, 2009)

References and Reading:
"Mr. Geithner, Wall Street is on Line 1 (again)"
By Matt Apuzzo and Daniel Wagner, ASSOCIATED PRESS, October 8, 2009.

BMJ: History of the SEC
Find out more about the history of financial regulation, including Sarbanes-Oxley.

Marcy Kaptur's Congressional Web site

Marcy Kaptur's full speech about foreclosures.
Video and transcript of Rep. Kaptur's speech.

THE BASELINE SCENARIO
The influential Web log maintained by Simon Johnson and James Kwak.

"Too Politically Connected To Fail In Any Crisis,"
By Simon Johnson, THE BASELINE SCENARIO, October 8, 2009.

"Big is Bad Again"
By Simon Johnson, THE NEW YORK TIMES, October 8, 2009.

"The Next Financial Crisis"
By Peter Boone and Simon Johnson, THE NEW REPUBLIC, September 8, 2009.

"Finance: Before the Next Meltdown"
By Simon Johnson and James Kwak, DEMOCRACY JOURNAL, Summer 2009.

The Financial Crisis for Beginners
James Kwak and Simon Johnson's guide to the Financial Crisis at THE BASELINE SCENARIO.

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