Magazine article The Spectator

The Spectators Notes

Magazine article The Spectator

The Spectators Notes

Article excerpt

In Princeton, New Jersey, last week, I gave two lectures on the legacy of Margaret Thatcher. I was told that the last outsider to have spoken at the university on this subject was Edward Heath. He had informed Princetonians that Lady Thatcher posed a greater threat to world peace than Saddam Hussein. My second lecture's audience was not disposed to agree.

They were members of the James Madison Program in American Ideals and Institutions, a movement set up to counter the politically correct culture of academia. Afterwards I read Frank Rich in the New York Times complaining that the Madison Program is the semi-covert backer of an organisation which has the - to him - dastardly project of promoting heterosexual marriage.

But on my day, that particular topic did not arise. We were discussing whether it was true that, in the events that led up to the credit crunch, Adam Smith's 'invisible hand' had put its fingers in the till. I argued differently: it was rather that capitalism and big government had made a devil's bargain in the last 15 years in which each agreed to cover up for the faults of the other. There is a powerful article about this in the latest issue of the Atlantic Monthly by Simon Johnson, the former chief economist of the IMF. He explains that when the IMF is invited in to help a country in financial difficulty, it always encounters the same obstacle - a politicalfinancial oligarchy which has much to lose by putting its house in order. The problem, he says, is that the United States has just such an oligarchy. Twenty-five years ago, the financial sector earned 16 per cent of the nation's corporate profits. In this decade, the figure is 41 per cent. With those profits has come power which is entrenched in 'the interweaving of the two career tracks' (of government and finance), and in 'a kind of cultural capital - a belief system'.

The case of Goldman Sachs illustrates.

Just as I reached Washington, Goldmans proudly announced that they now wanted to pay back early the $10 billion that they had taken from the government's Troubled Asset Relief Program (TARP). Public joy was confined by the fact that they were not proposing to surrender the other forms of government protection they enjoy. They were keen to cast off what the head of JPMorgan Chase, which is in a similar situation, called the 'scarlet letter' of TARP aid, so that they could return to their more traditional vice of paying one another as much as they wanted. Robert Rubin, who was Clinton's Treasury secretary, was once co-chairman of Goldmans. Henry Paulson, who did the same job for George W. Bush, had been its CEO.

The largest single financial backer of Barack Obama's election campaign - through the agreed individual contributions of the top tier of the company - was Goldman Sachs.

The banks have become like heavy, often nationalised industry was 40 years ago - the 'commanding heights' which grabbed more political power at the expense of their true economic efficiency. Political leadership has to confront them, while preserving their necessary functions. Mr Obama, though clean of responsibility for the mess, is in a curiously weak position to do this, because his government, like the banks, is 'too big to fail'.

The Republicans, however, seem not to understand that President Obama still has the benefit of the doubt. …

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