How the banks are impeding economic recovery

The following article from the May 2009 Atlantic is a must-read for anyone who's curious about how we got into the present economic mess: The Quiet Coup, by Simon Johnson.

Johnson is a former IMF economis, now working at MIT's Sloan school, who has seen many other countries, mostly third-world, going through the same economic crisis that we now see in the US and worldwide. The usual cause of the problem, and the most difficult barrier impeding actual recovery, from his IMF experience, are the oligarchs running the financial system, and the government, of the countries in question.

His argument is that the US has become like a banana republic, in that it's being held hostage by a financial elite that got us into this mess, and is now resisting with all its might any change that would reduce its power.

In effect, the debate over who was most to blame for the financial crisis: lack of government regulation, or overoptimistic bankers, is a false dichotomy. In a sense, they are part of the same problem: the US is being run by financial elites who believe they are above law and any other power.

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again).
...
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Scary stuff, but essential for understanding where we are right now.