Yesterday was the first anniversary of the collapse of Wall St bank Lehman Bros, and there was no better way to commemorate it than in the company of esteemed economics editor Ross Gittins and author John R. Talbott. The former Goldman Sachs banker is in Australia to promote his new book, The 86 Biggest Lies on Wall St and spoke at a packed Gleebooks event last night.
Both men are fine proponents of the “I told you so” school of economic commentary, relayed with erudition and a certain amount of dry wit. In his previous books, Talbott predicted the dotcom collapse, the crash in the housing market and the current global financial crisis.
Talbott, who has been in Australia for so long that he appeared in thongs, blames many parties for the current financial crisis, including the US Congress, Wall St, the banking industry, regulators and rating agencies. However, he reserves his biggest criticism for corporate lobbyists and their stranglehold on government. Although President Obama spoke of “hope and change”, and promised to curb lobbyists’ power, he has in fact turned over the drafting of the health insurance legislation to the members of congress, all of whom receive huge amounts of money from the lobbying industry, the author said.
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A total of 98.4% of the members of congress are re-elected every term because they can each raise $US20 million from the lobbyists to spend on television advertising at election time, Talbott said. The American populace understands this, leading to Congress’ current approval rating of 11%, compared with George W Bush’s final approval rating of 18%.
Laws are written to protect the American people, not corporations, he said. However, the US government “has been very effective in passing legislation favourable to the corporations who have been paying it. It has facilitated globalisation while it has done nothing about global warming, to the great glee of corporate America; it has enforced intellectual property rights and patents for new products and new drugs around the world; it has lengthened copyright and patent protection periods; and it has created loopholes such that very few large corporations pay any corporate income tax at all.”
Talbott wants to counteract this influence by forming his own internet-based group, based loosely on the US-based MoveOn (the model for our own Get Up! (what is the reason for the ridiculous exclamation mark?)) to apply pressure on corporations to stop their lobbying activities by threatening them with boycotts.
The former engineer, who comes across as a thinner and more focussed Michael Moore, said that since talking about this in the US a month ago, he had been contacted by several hundred people offering support.
If he could get 30,000 people to join, and each of them contacted another 30 people each, then potentially the group could reach 30 million people with two emails, he said. This would be a potent force for change.
Ross and he agreed that the vast majority of economists had failed to predict the current global financial crisis because they believed the commonly-held view that markets always got it right. Paul Krugman also wrote about this in the New York Times this week.
This view had led most economists to ignore all the things that can go wrong, Krugman wrote. “They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.”
Even the world’s most successful investor, Warren Buffett, has lost money in this downturn. Asked recently if anything was keeping him awake at night, his advice was short and to the point.
“If it’s going to keep me awake at night,” he said, “I am not going to go there.”