US is IMF basket case – what to do?

Two former top employees of the International Monetary Fund, Desmond Lachan and Simon Johnson, discuss how America got to this point.

Lachan, previously a deputy director there, took much of his article to compare some black marks of our economy today with Russia and Argentina in the 1990. I tackled it in more depth in a previous post. Suffice it to say that a Harvard-educated finance minister (Argentina) or Harvard-educated consultants (Russia) should belie the idea that previous employment at Goldman Sachs (United States) guarantees special economic brilliance.

Simon Johnson, a former IMF chief economist, has an even an even more in-depth piece at The Atlantic, both about how the U.S. is a potential IMF basket case, and about how, per Paul Kennedy in “The Rise and Fall of the Great Powers,” financialism has somehow become an “industry,” and one of the biggest in America at that.

And, since Lachan has a stereotypical “old style IMF” recommendation — austerity measures, I want to focus much more on Johnson in this post, on his prescription side, since that differs strongly from Lachan’s even though they make essentially the same diagnosis.

Johnson offers up more concern about how Team Geithner, or Team Summers is dealing with the financial bailout issue:

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change.

Johnson, in fact, disagrees with his former IMF compadre on what’s needed next:

The second problem the U.S. faces — the power of the oligarchy — is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy. …

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. …

To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation.

Given that Geithner’s “regulatory” plan does exactly none of this, and contra disappointed but still pony-seeking types like Paul Krugman, isn’t likely to ever do any of this, (Dennis Kucinich, since Bush impeachment went nowhere, how about Geithner impeachment?), let’s not hold our collective breath.

Indeed, Johnson tells us why we shouldn’t hold our collective breath:

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity.

Does this sound like Geithner’s TALF plan? His proposed regulatory plan? The way he and Bernanke talk down even to much of Congress?

Johnson says there could light at the end of the tunnel, but possibly only after going through a tunne even darker than the Great Depression.