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refinanced by a group of private sector banks, preventing a major crisis; a series of interest rate cuts by the Fed even kept the stock market bubble growing for another two years. The mature U.S. financial system, it seemed, could withstand any infection that might spread from the developing world, thanks to its sound financial system and macroeconomic management.
    Crises were for countries with immature economies, insufficiently developed financial systems, and weak political systems, which had not yet achieved long-term prosperity and stability—countries like Thailand, Indonesia, and South Korea. These countries had three main characteristics that created the potential for serious instability in the 1990s: high levels of debt, cozy relationships between the government and powerful individuals in the private sector, and dependence on volatile inflows of capital from the rest of the world. Together, these ingredients led to economic disaster. Debt-fueled booms, collapsing bubbles, and panic-stricken financial systems were all reminiscent of the Crash of 1929, but the conventional wisdom was that the United States had put these growing pains behind it, thanks to strong corporate governance, deposit insurance, and robust financial regulation. Emerging market crises were an opportunity for the United States to teach the world how to deal with financial crises. Few people suspected that, despite the many obvious differences between emerging Asian economies and the world’s largest economy, some of those lessons would become relevant to the United States only a decade later.

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WALL STREET RISING
     

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“GREED IS GOOD”
     

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THE BEST DEAL EVER
     
These amendments are intended to reduce regulatory costs for broker-dealers by allowing very highly capitalized firms that have developed robust internal risk management practices to use those risk management practices, such as mathematical risk measurement models, for regulatory purposes.
—Securities and Exchange Commission, “Final Rule: Alternative Net Capital Requirements for Broker-Dealers That Are Part of Consolidated Supervised Entities,” Effective August 20, 2004 1
     
    By the mid-1990s, Wall Street was a dominant force in Washington. It had survived the implosion of the savings and loan industry in the late 1980s, the election of a Democratic president in 1992, a congressional investigation of predatory subprime lending in 1993, and a wave of scandals caused by toxic derivatives deals in 1994 without facing any significant new constraints on its ability to make money.
    The U.S. financial elite did not owe its rise to bribes and kickbacks or blood ties to important politicians—the usual sources of power in emerging markets plagued by “crony capitalism.” But just as in many emerging markets, it constituted an oligarchy—a group that gained political power because of its economic power. With Washington firmly in its camp, the new financial oligarchy did what oligarchies do—it cashed in its political power for higher and higher profits. Instead of cashing in via preferred access to government funding or contracts, however, the major banks engineered a regulatory climate that allowed them to embark on an orgy of product innovation and risk-taking that would create the largest bubble in modern economic history and generate record-shattering profits for Wall Street.
    When the entire system came crashing down in 2007 and 2008, governments around the world were forced to come to its rescue, because their economic fortunes were held hostage by the financial system. The title of Louis Brandeis’s 1914 book, Other People’s Money, referred to ordinary people’s bank deposits, which could be used by investment bankers—“Our Financial Oligarchy”—to control industries and generate profits. In 2008, however, the banks found another way to tap other people’s money: the taxpayer-funded bailout.

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THE AMERICAN OLIGARCHY
     

DISMANTLING THE WALL STREET