In a recent talk at the Philadelphia Federal Reserve at a conference titled “Fixing the Banking system for Good,” Jeffrey Sachs, economist, Columbia University Professor, and respected D.C. insider had some harsh things to say. The following is from a transcript of his talk provided by Naked Capitalism. Emphasis is mine along with some re-paragraphing:
[The removal of Glass Steagall] was a very, very cynical play by Rubin, Summers, Clinton, Gramm and others who all had very strong interests, personal interests, in the outcomes of that deregulation, and exploited the gaps that they created, and then to the chagrin of some of us at least, were invited right back into the White House in early 2009, after they had made this calamitous mess, to be the ones supposedly to fix it.
And I know that Summers, for example, continued to really institute moral hazard policies right and left by fighting against any limits on compensation of these people who had entered into the breach.
. . . I would add this other point, which is that a lot of what’s happened actually, and what’s been revealed, is in my view prima facie criminal behavior. It’s financial fraud on a very large extent. There’s also a tremendous amount of insider trading, and you can even watch it when you’re living in New York, how that works.
So it’s not so mysterious, but we don’t even act—take John Paulson, for example. Paulson worked together with Goldman Sachs to defraud [on a massive scale] many European banks, which had bought the toxic mortgages that Paulson had put together. When this Abacus deal was taken up by the SEC, Goldman ended up paying a small fine. The chair of Goldman, of course, continued in his position and continued [to attend] White House state dinners, and Paulson wasn’t even mentioned once in any of the proceedings, and he took home a $1 billion dollar paycheck the next year, even as Goldman was paying a roughly $700-million-dollar fine, if I remember correctly, for the abuse that Paulson was part of. I can’t believe, no matter what the financial regulations, we can’t do better than that. That’s really pathetic.
. . . The final point, of course, is separating the politicians from the crooks, but maybe that’s so close together that they can’t actually be separated. Maybe it’s just the same community. . .
. . . I believe we have a crisis of values that is extremely deep, because the regulations and the legal structures need reform. I meet a lot of these people on Wall Street on a regular basis right now. I’m going to put it very bluntly. I regard the moral environment as pathological. And I’m talking about the human interactions that I have. I’ve not seen anything like this, not felt it so palpably. These people are out to make billions of dollars and nothing should stop them from that. They have no responsibility to pay taxes. They have no responsibility to their clients. They have no responsibility to people, counterparties in transactions.
They are tough, greedy, aggressive, and feel absolutely out of control, you know, in a quite literal sense. And they have gamed the system to a remarkable extent, and they have a docile president, a docile White House, and a docile regulatory system that absolutely can’t find its voice. It’s terrified of these companies.
If you look at the campaign contributions, which I happened to do yesterday for another purpose, the financial markets are the number one campaign contributors in the U.S. system now. We have a corrupt politics to the core, I’m afraid to say, and . . . both parties are up to their necks in this. This has nothing to do with Democrats or Republicans. It really doesn’t have anything to do with right wing or left wing, by the way. The corruption is, as far as I can see, everywhere. . .
So, who is Jeffrey Sachs?
Jeffrey Sachs is a complicated person. I’ve written about him before on Occasional Planet. As mentioned previously, he is an economist and a professor at Columbia University. In addition, he’s Special Advisor to United Nations Secretary-General Ban Ki-Moon, and the founder and co-President of the Millennium Promise Alliance, a nonprofit organization dedicated to ending extreme poverty and hunger. He has had some good ideas about how to jumpstart the economy and he supported the Peoples Budget put forward by the Congressional Progressive Caucus in 2011.
But in his past, in his role as an economic advisor to countries emerging from communism, his neoliberal economic ideas created tremendous suffering. He is best known for promoting the use of “shock therapy” (rapid privatization) in emerging economies in the early 90s. To make a long story short, a lot of his policy ideas in the past twenty years have produced unimaginable disaster for millions of people around the world.
In his role as advisor to the collapsing Soviet Union, critics Nancy Holmstrom and Richard Smith point out that Sachs “supposed the transition to capitalism would be a natural, virtually automatic economic process: start by abandoning state planning, free up prices, promote private competition with state-owned industry, and sell off state industry as fast as possible . . .”.
What happened, of course, was the GDP and personal incomes were halved, the suicide rate doubled, unemployment skyrocketed and in the wake of this disaster, Russian Gangster Capitalism took root and flourished.
Western economic experts, who were the architects of the former communist countries’ transition to market economies, have expressed shock and disappointment at the extent of corruption, criminality, and social collapse that have accompanied the market reforms they prescribed. As one U.S. Treasury official complained, “We had a belief that the first generation of Russian capitalists would be nice guys, but they are ruthless motherfuckers.”
We will argue here that the reason Western economists were surprised by these outcomes is because they relied on a historical-fantasy-world, neoliberal model of capitalism.
Jeffrey Sachs, was one of those Western economists living in a neoliberal capitalist fantasy world. Just for the record, right now, we have Democratic, neoliberal, “centrist,” elites trying to kill the New Deal. If his recent talk at the Fed is any indication, Sachs seems to have awakened from his past. What he describes, in his recent blistering comments at the Philadelphia Federal Reserve, is the presence, in the U.S., of the equivalent of Russian gangster capitalists—criminals in the Wall Street financial sector—who have bought almost every politician in Washington, and who continue to be invited to dine in the White House by a fawning, complicit President. Sachs was not speaking in generalities; he names names.
According to this beltway insider, the biggest danger to our democracy is not a “gridlocked Washington,” or a dysfunctional Republican party, but the current control of our political process by a dangerous predator class.