Former International Monetary Fund chief economist Simon Johnson said Wednesday that the biggest U.S. banks are too powerful and exert too much influence over the government.
Johnson told an audience at Washington's School of Advanced International Studies (SAIS) that the biggest American banks bear considerable blame for the on-going financial crisis in the United States and subsequent global recession. Saying they comprise a financial oligarchy, Johnson said the biggest banks should to be broken up into smaller parts.
He predicted that some major U.S. or European banks will fail. But he opposes nationalization, saying governments make bad managers and would impose a political agenda on the banks.
Now a professor at the business school at the Massachusetts Institute of Technology, Johnson voiced a similar view in responding to a caller on America's C-SPAN television last week.
"Why are your taxes going to go up? Why is the government having to take these measures [in rescuing the banks]? Because of the mistakes made by big business, these huge, huge mistakes [in taking too much risk]. Because they became far too big and powerful. And now they're trying to stick the rest of us [taxpayers] with the bill," he said.
Johnson said the financial services industry exerts its political power by contributing huge amounts of money to the electoral campaigns of members of the U.S. Congress. He said world economies are currently so weak that despite massive monetary and fiscal stimulus, recovery is likely to be sluggish and slow to begin.
Another economist, Financial Times financial commentator Martin Wolf made a similar assesment about the power of the big banks. He told a Washington audience last week that the bailout of the banks is imposing intolerable costs on U.S. and European governments.
"We can't go on living like this. It's intolerable. And that is really the background, I think, that we have to approach thinking about the future of the financial system. We shouldn't allow one sector of the economy [the banks] to inflict fiscal costs on economies that are comparable, of course not in terms of destruction, but in economic costs, are like having a significant war," he said.
The International Monetary Fund says the financial losses directly related to the banking crisis are likely to approach $4 trillion.
The global crisis began in August 2007 with a credit squeeze associated with losses in the sub-prime U.S. mortgage market.