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Authors: Simon Johnson
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for McKinsey & Company and as a software entrepreneur. He is currently a student at Yale Law School.
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ALSO BY SIMON JOHNSON
Starting Over in Eastern Europe:
Entrepreneurship and Economic Renewal
(with Gary Loveman)
FIRST VINTAGE BOOKS EDITION, JANUARY 2011
Copyright © 2010, 2011 by Simon Johnson and James Kwak
All rights reserved. Published in the United States by Vintage Books, a division of Random House, Inc., New York, and in Canada by Random House of Canada Limited, Toronto. Originally published in hardcover in slightly different form in the United States by Pantheon Books, a division of Random House, Inc., New York, in 2010.
Vintage and colophon are registered trademarks of Random House, Inc.
The Library of Congress has cataloged the Pantheon edition as follows:
Johnson, Simon.
13 bankers : the Wall Street takeover and the next financial meltdown / Simon Johnson and James Kwak.
p. cm.
1. Banks and banking—United States. 2. Bank failures—United States. 3. Finance—United States. 4. Financial crises—United States. I. Kwak, James. II. Title. III. Title: Thirteen bankers.
HG2491.J646 2010 332.10973—dc22
2010000168
eISBN: 978-0-307-37922-1
Author photographs © Anthony Armand Placet (Johnson) and
courtesy of the author (Kwak)
Cover photograph © Alex Ely/Getty Images
www.vintagebooks.com
v3.1_r1
TO OUR FAMILIES
They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.
—F. Scott Fitzgerald, The Great Gatsby 1
2
OTHER PEOPLE’S OLIGARCHS
Financial institutions have priced risks poorly and have been willing to finance an excessively large portion of investment plans of the corporate sector, resulting in high leveraging.
—Korea Letter of Intent to the IMF, December 3, 1997 1
In the mid-1990s, financial crises in less developed parts of the world were only too common. Mexico had a major meltdown in 1994–1995 and former communist countries such as Russia, the Czech Republic, and Ukraine struggled with severe financial shocks. Then in 1997–1998, what seemed like the mother of all international financial crises swept from Thailand through Southeast Asia to Korea, Brazil, and Russia. The contagion even spread to the United States via Long-Term Capital Management (LTCM), an enormous and terribly named hedge fund, which came to the brink of collapse.
In the United States, economists and policymakers took two main lessons from these crises. The first was that crises could be managed—by pushing other countries to become more like the United States. Through the experiences of 1997–1998, the U.S. Treasury Department and the International Monetary Fund (IMF) developed a game plan for handling financial crises: structural weaknesses such as a failing financial sector had to be dealt with immediately, without waiting for the economy to stabilize. Both directly and through their influence over the IMF, the key architects of U.S. economic policy—Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Federal Reserve chair Alan Greenspan—pressed crisis-stricken countries to liberalize their financial systems, increase transparency in their political systems, and model the governance of their corporations on the Anglo-American system (with a greater role for mutual funds and other institutional investors). For their pains, the Rubin-Summers-Greenspan trio was featured on the cover of Time magazine as the “Committee to Save the World.” 2
The second lesson was that while the U.S. economy was not completely immune to financial panics, any real damage could be contained through a few backroom deals. At the urging of the Federal Reserve, LTCM was essentially bought out and
baselinescenario.com
ALSO BY SIMON JOHNSON
Starting Over in Eastern Europe:
Entrepreneurship and Economic Renewal
(with Gary Loveman)
FIRST VINTAGE BOOKS EDITION, JANUARY 2011
Copyright © 2010, 2011 by Simon Johnson and James Kwak
All rights reserved. Published in the United States by Vintage Books, a division of Random House, Inc., New York, and in Canada by Random House of Canada Limited, Toronto. Originally published in hardcover in slightly different form in the United States by Pantheon Books, a division of Random House, Inc., New York, in 2010.
Vintage and colophon are registered trademarks of Random House, Inc.
The Library of Congress has cataloged the Pantheon edition as follows:
Johnson, Simon.
13 bankers : the Wall Street takeover and the next financial meltdown / Simon Johnson and James Kwak.
p. cm.
1. Banks and banking—United States. 2. Bank failures—United States. 3. Finance—United States. 4. Financial crises—United States. I. Kwak, James. II. Title. III. Title: Thirteen bankers.
HG2491.J646 2010 332.10973—dc22
2010000168
eISBN: 978-0-307-37922-1
Author photographs © Anthony Armand Placet (Johnson) and
courtesy of the author (Kwak)
Cover photograph © Alex Ely/Getty Images
www.vintagebooks.com
v3.1_r1
TO OUR FAMILIES
They were careless people, Tom and Daisy—they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made.
—F. Scott Fitzgerald, The Great Gatsby 1
2
OTHER PEOPLE’S OLIGARCHS
Financial institutions have priced risks poorly and have been willing to finance an excessively large portion of investment plans of the corporate sector, resulting in high leveraging.
—Korea Letter of Intent to the IMF, December 3, 1997 1
In the mid-1990s, financial crises in less developed parts of the world were only too common. Mexico had a major meltdown in 1994–1995 and former communist countries such as Russia, the Czech Republic, and Ukraine struggled with severe financial shocks. Then in 1997–1998, what seemed like the mother of all international financial crises swept from Thailand through Southeast Asia to Korea, Brazil, and Russia. The contagion even spread to the United States via Long-Term Capital Management (LTCM), an enormous and terribly named hedge fund, which came to the brink of collapse.
In the United States, economists and policymakers took two main lessons from these crises. The first was that crises could be managed—by pushing other countries to become more like the United States. Through the experiences of 1997–1998, the U.S. Treasury Department and the International Monetary Fund (IMF) developed a game plan for handling financial crises: structural weaknesses such as a failing financial sector had to be dealt with immediately, without waiting for the economy to stabilize. Both directly and through their influence over the IMF, the key architects of U.S. economic policy—Treasury Secretary Robert Rubin, Deputy Treasury Secretary Larry Summers, and Federal Reserve chair Alan Greenspan—pressed crisis-stricken countries to liberalize their financial systems, increase transparency in their political systems, and model the governance of their corporations on the Anglo-American system (with a greater role for mutual funds and other institutional investors). For their pains, the Rubin-Summers-Greenspan trio was featured on the cover of Time magazine as the “Committee to Save the World.” 2
The second lesson was that while the U.S. economy was not completely immune to financial panics, any real damage could be contained through a few backroom deals. At the urging of the Federal Reserve, LTCM was essentially bought out and
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