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13 Bankers: The Wall Street Takeover and the Next Financial Meltdown

Simon Johnson PhD '89: April 2, 2010; Running Time: 53:32

About the Lecture

About the Lecture

[from MIT Sloan School of Management Newsroom]

Channeling Thomas Jefferson and Theodore Roosevelt, MIT Sloan School of Management Professor
Simon Johnson warns in a new book that a “new financial oligarchy” threatens not only the nation’s economy, but its political core. In 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, Johnson, says the book provides “the back story” for the 2008 financial crisis “and for all the issues being raised now around financial reform. We hope the book helps people have a badly needed conversation about what we must do to push back against dangerous, narrow interest groups that now threaten our economic well-being.”

In 13 Bankers, Johnson, a former chief economist for the International Monetary Fund, and co-author
James Kwak cite historical precedents and offer financial analysis to conclude that a second financial shock is inevitable unless the financial and political stranglehold held on Washington by the nation’s biggest banks is broken. “The best defense against a massive financial crisis is a popular consensus that too big to fail is too big to exist,” the authors write. “This is at its heart a question of politics, not of economics or of regulatory technicalities.”

The book points out that the current concentration of financial and political power is not unlike other moments in American history. President Theodore Roosevelt, for example, challenged the monopoly powers of banker and industrialist J.P. Morgan. “No one thought he could win,” Johnson says in an interview, “but he did succeed in the first prosecution of a corporation under the Sherman Antitrust Act.” Roosevelt, he said, began a process that helped people understand the need to rein in the power of corporate giants, such as John D. Rockefeller’s Standard Oil, “which was arguably more important as a single company in 1910 than J.P. Morgan was then or J.P. Morgan Chase is now,” says Johnson.

Similar leadership is needed from the Obama administration and Congress now, according to 13 Bankers, which concludes that regulatory changes and other responses to date have been vastly inadequate. Johnson supports the administration’s proposed consumer protection measures, but overall, “You can’t just tweak a few rules and expect to rein in these big institutions.” Instead, the book calls for the six biggest banks to be broken up and for hard limits to be imposed so that banks cannot rebuild themselves into political and financial powerhouses. “Saying that we cannot break up our largest banks is saying that our economic futures depend on these six companies,” notes Johnson. “That thought should frighten us into action.”

Lecture Details

Location: Wong Auditorium

“It's about power of private interests verses democracy. Democracy is messy, democracy is crazy, democracy is all of us.”

Simon Johnson

About the Speaker

Simon Johnson PhD '89

Ronald A. Kurtz (1954) Professor of Entrepreneurship, MIT Sloan School of Management

Simon Johnson is also a senior fellow at the Peterson Institute for International Economics in Washington, D.C., and co-founder of a website on the global economic and financial crisis, BaselineScenario.com. He is co-director of the National Bureau of Economic Research 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 Research Department. In 2000-2001 Professor Johnson was a member of the US Securities and Exchange Commissions Advisory Committee on Market Information. 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.

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). In January 2010, he joined The Huffington Post as contributing business editor. Johnson earned his B.A. from the University of Oxford, his M.A. from the University of Manchester, and his Ph.D. in Economics from MIT.

Simon Johnson PhD '89

Johnson's MIT website

Baseline Scenario blog

About the Host

About the Host

MIT Sloan School of Management

The MIT Sloan School of Management, based in Cambridge, Massachusetts, is one of the world’s leading business schools — conducting cutting-edge research and providing management education to top students from more than 60 countries. The School is part of MIT’s rich intellectual tradition of education and research.

MIT Sloan began in 1914 as engineering administration curriculum in the MIT Department of Economics and Statistics. The scope and depth of this educational focus have grown steadily in response to advances in the theory and practice of management to today’s broad-based management school.

A program offering a master’s degree in management was established in 1925. The world’s first university-based executive education program — the MIT Sloan Fellows — was created in 1931 under the sponsorship of Alfred P. Sloan, Jr., an 1895 MIT graduate who was then chairman of General Motors. A MIT Sloan Foundation grant established the MIT School of Industrial Management in 1952 with a charge of educating the “ideal manager.”