You are either the looter or the lootee

Simon Johnson pens today’s must-read piece.

Emerging market crises are marked by an increase in tunneling - i.e., borderline legal/illegal smuggling of value out of businesses.  As time horizons become shorter, employees have less incentive to protect shareholder value and are more inclined to help out friends or prepare a soft exit for themselves.

This is the prospect now faced by the United States.

Who can explain exactly how AIG has lost so much money?

The course of policy is set.  For at least the next 18 months, we know what to expect on the banking front.  Now Treasury is committed, the leadership in this area will not deviate from a pro-insider policy for large banks; they are not interested in alternative approaches (I’ve asked).

The road to economic hell is paved with good intentions and bad banks.

Read the whole thing.  (It is not long.)

I wonder when — and whether — the average person will realize what is happening here.

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