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In US System, Rich Businessmen Need Not Buy Regulators and Politicians

This is a syndicated repost courtesy of The Baseline Scenario. To view original, click here. Reposted with permission.

I wrote a column that went up this morning at The Atlantic about the ProPublica/This American Life story about the New York Fed. The gist of the argument is that we all knew the New York Fed was captured; for people like Tim Geithner, that’s a feature, not a bug.

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There was a paragraph in my original draft that I really liked, but I can completely understand why the editors didn’t want it:

“When Tyrion Lannister wants his son killed, he sentences him to death in public. When Avon Barksdale wants potential incriminating witnesses killed, he obliquely lets his lieutenant know that he’s worried about loose ends—because he doesn’t want his fingerprints (voiceprints, actually) visible. When senior New York Fed officials want their staff to go easy on Goldman Sachs—well, they don’t need to lift a finger. The institutional culture takes care of it for them.”

This is similar to the idea at the core of “The Quiet Coup,” the Atlantic article that had a million page views back in 2009. In a less well developed political system, rich businessmen buy favorable policy by passing money under the table (or hiring politicians’ relatives, or giving them loans and then letting them default, and so on). In the United States, for the most part, you don’t have to do anything illegal: the system takes care of it for you, whether it’s bailout money from the Treasury Department or regulatory forbearance from the New York Fed. That system is a combination of personal incentives, cultural capture, and institutional sclerosis.

In short, buying politicians (or regulators) is good. Not having to buy them in the first place is even better.

Wall Street Examiner Disclosure: Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. No endorsement of such content is either expressed or implied by posting the content. All items published here are matters of information and opinion, and are neither intended as, nor should you construe it as, individual investment advice. Do your own due diligence when considering the offerings of information providers, or considering any investment.

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