The Deeply Captured Situation of the Economic Crisis

Here is an outstanding 30-minute video interview about the sources of the financial crisis.  The interview should resonate with regular readers of The Situationist and those otherwise familiar with the “deep capture” hypothesis.

From Bill Moyers Journal:

“How did Big Finance grow so powerful that its hijinks nearly brought down the global economy – and what hope is there for real reform with Washington politicians on Wall Street’s payroll? Bill Moyers talks with authors Simon Johnson and James Kwak, two of the nation’s most respected economic experts and authors of the new book 13 Bankers: The Wall Street Takeover and the Next Financial Meltodown.”

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Here’s a sample of the transcript:

James Kwak: I think there are two things. There’s a narrow and a broad view of this. The narrow view is I think Rubin is actually not lying. I think it is true that Rubin did not know what the risks were. Although he certainly should have known what the risks were. And that’s because he was fully subscribed to this ideology that free markets are good. That the market will take care of itself. That, he also suffered from a lot of the blindness that corporate officers and directors have. Corporate officers and directors manage these enormous organizations with tens of hundreds of thousands of people. They have very little idea what’s going on. They’re getting their information from subordinates, who are giving them a filtered view of the world. On the other hand, when he says, no one could have foreseen this. This is what I call an intellectual cover up. And I say that because it’s very disingenuous. Over the past 20 years, these banks used their economic power and their political power to engineer an unregulated financial environment in which precisely this sort of thing could happen. And in that sense, I think that this was not an accident. It was not a natural disaster. It was not unforeseeable. It was the product of the efforts by the sector over the past 20 years to reshape Washington and to engineer an environment that would allow them to make as much money as possible. Simon talked earlier about money. And we know that the financial sector, especially Wall Street, has been, has made enormous contributions to both campaign contributions and lobbying expenses. But I think there were, there were two more potent weapons in their arsenal. One is the revolving door. So, we’ve seen an enormous number of people passing back and forth between Washington and Wall Street over the past 20 years. This is not a new phenomenon. It happens in every industry. But there are certain things that make it especially pernicious when it comes to finance. One is that, one is a question of incentives. So, compared to other industries, Wall Street can simply offer enormous amounts of money. I’m not saying that everyone did that. I’m not saying that even the majority of people did that. But that is, that is very clear.

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Vodpod videos no longer available.

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You can learn more about Wall Street reform and Simon Johnson and James Kwak here.

The most basic prediction of the “deep capture” hypothesis is that there will be a competition over the situation (including the way we think) to influence the behavior of individuals and institutions and that those individuals, groups, entities, or institutions that are most powerful will win that competition. The deep capture hypothesis was described in more detail in a series of posts.

• Part I of that series explained that the “deep capture” story is analogous to the (shallow) capture story told by economists (such as Nobel laureate George Stigler) and public choice theorists for decades regarding the competition over prototypical regulatory institutions.
• Part II looked to history (specifically, Galileo’s recantation) for another analogy to the process that we claim is widespread today — the deep capture of how we understand ourselves.
• Part III picked up on both of those themes and explains that Stigler’s “capture” story has implications far broader and deeper than he or others realized.
• Part IV examined the relative power (measured as the ability to influence situation) of large commercial interests today, much like the power of the Catholic Church in Galileo’s day.
• Part V described other parallels between the Catholic Church and geocentrism, on one hand, and modern corporate interests and dispositionism, on the other.
• Part VI laid out the “deep capture hypothesis” a bit more and began loosely testing it by examining the role that it may have played in the “deregulatory” movement.
• Part VII provided some illustrative examples of how atypical “regulators,” from courts to hard-hitting news networks, reflect and contribute to deep capture.
• Part VIII contrasted different cultures for evidence of commercial interests in promoting dispositionism.
• Part IX described the strategy of employing third-party messengers.
• Part X summarized some of the evidence of how pro-commercial interests invested to shape legal theory and law.

For a sample of related Situationist posts, see “The Century of Dipositionism – Part I,” “Robert Reich on the Situation of Health Care Reform,” “Conference on the Free Market Mindset,” “Our Stake in Corporate Behavior,” “Tushnet on Teles and The Situation of Ideas – Abstract,” “Larry Lessig’s Situationism,” “The Situation of Policy Research and Policy Outcomes,” “Reclaiming Corporate Law in a New Gilded Age – Abstract,” “The Illusion of Wall Street Reform,” “Industry-Funded Research,” “The Situation of Medical Research,” “The Situation of Talk Radio,” “The company ‘had no control or influence over the research’ . . . .,” “The Situation of University Research,” “Captured Science.”