America’s Crony Capitalism

Buenos Aires – For 20 years, Americans have denounced the “crony capitalism” of Third World countries, especially in Asia. But, just as those regions have been improving their public and corporate governance – Hong Kong just witnessed a breakthrough court decision against a telecom tycoon who is the son of the province’s richest and most powerful man – crony capitalism is taking root in the United States, a country that the world long considered the gold standard of a level playing field in business. The recently completed “stress tests” of US banks are but the latest indication that crony capitalists have now captured Washington, DC.  

It is no surprise that stock markets liked the results of the stress tests that US Treasury Secretary Timothy Geithner administered to America’s big banks, for the general outcome had been leaked weeks before. Indeed, most professional investors trashed the tests as dishonest even as their holdings benefited from a rising market.

Even The Wall Street Journal, usually financial markets’ loudest cheerleader, openly disparaged the tests’ integrity. The government had allowed bankers to “negotiate” the results, like a student taking a final examination and then negotiating her grade.

The tests were supposed to reveal the true conditions of banks saddled with unaudited toxic assets in housing loans and financial derivatives. The reasoning behind the tests seemed unimpeachable. But was it?