MIT Economist: Big Banks Have 'Hijacked' The Political Process

MIT Economist: Big Banks Have 'Hijacked' The Political Process

A prominent economist says big banks have "hijacked" the political process and now have "a leading driver's seat" in determining financial regulation.

"No politician in the United States can take financial decisions without getting the okay of the powerful financial firms," said Daron Acemoglu, an economics professor at MIT and co-author of the book "Why Nations Fail," in a video interview on Friday with Reuters TV.

Acemoglu pointed to the fact that when the financial crisis reached a breaking point in 2008, then-Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy Geithner "called the CEOs of the major banks and asked them, 'What should we do? Where should we channel money? Who should we bail out?'"

Acemoglu said that the growing dominance of the financial industry is indicative of a larger trend: The U.S. has become "much less politically equal" over time, as what he calls "extractive economic institutions" gain control.

In "Why Nations Fail," Acemoglu defines "extractive" institutions as those that allow powerful elites enrich themselves at the expense of the public, maintaining barriers to social mobility and economic activity.

Acemoglu told Reuters that inclusive economic institutions, such as quality public education, are necessary to "provide a level playing field ... so that people can deploy their talent."

But, he said, "Over the last 30, 35 years, the political system has been listening to the wealthy elites, the politically powerful, economically powerful individuals and corporations much more, and this has been eroding the sort of political equality that is the basis of inclusive elements in U.S. institutions."

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