The Atlantic has a thought provoking article from a former IMF official Simon Johnson about the current American economic crisis and compares it to other countries like South Korea that faced such as crisis before:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.  [The Atlantic]

Here is where he compares the US to prior financial meltdowns such as in South Korea:

No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.  (………..)

Growing political support meant better access to lucrative contracts, tax breaks, and subsidies. And foreign investors could not have been more pleased; all other things being equal, they prefer to lend money to people who have the implicit backing of their national governments, even if that backing gives off the faint whiff of corruption.

But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

Read the whole thing, but one of his recommendations is that the ogliarchs in America need to be cracked down on, which so far only Lehman Brothers has been a major institution that has been allowed to fail.  He said that in countries like South Korea they didn’t go far enough in cracking down on their ogliarchs and expects America to do the same thing, which bailout mania shows is happening.

Something that will prove very controversial is that he thinks the government needs to nationalize the banks because he believes the banks are not lending because they are hiding more losses.  By nationalizing the banks that would then expose how steep their losses really are.  If the US does not nationalize the banks then he expects a lost decade like what happened in Japan.

I would be interested in hearing what people involved in business think of the article.