Skip to main content Accessibility help
  • Print publication year: 2013
  • Online publication date: January 2013

1 - The Institutional Foundations of Financial Politics in the United States


As the financial crisis of 2008 wound down, economist Willem Buiter quipped, “self-regulation is to regulation as self-importance is to importance.” We know intuitively that they are not the same thing. Buiter goes on to comment that if a large corporation such as Airbus or Boeing wants to double its operations, it would need four or five years to assemble the money, build the factories, and ramp up its business. However, a bank can double, triple, or even quadruple its operations with incredible speed under the right circumstances of optimism, trust, and confidence. Unlike a large manufacturing operation that needs a plant and inventory of parts, a bank borrows and re-lends money to increase its operations without the same need for physical infrastructure. The problem is that the speed works in reverse. In the absence of the large fixed costs associated with plants and heavy machinery maintenance, pessimism, mistrust, lack of confidence, and fear or panic can force banks to shrink their operations at an even faster rate than they grow. Given the centrality of the banking system to economic activity and this unique feature of its operations, the industry cannot be left to police its own activities.

Policing the activities of banks poses a unique set of problems in the United States. By world standards, American political culture contains a very antigovernment streak. The early patriots resented taxation by the British parliament. Unlike many constitutions that detail a role for government, the Bill of Rights in the American Constitution is a list of things the government cannot do. The political activities of banks and financial institutions are no exception to this rule. Like the rest of American business, they seek the freedom to conduct their affairs with a minimal amount of government intervention to maximize their profits. The problem is that the failure of a large bank has very different societal effects than the failure of other firms. The entire U.S. economy is dependent on the banking system for money, credit, and a way to make payments. Therefore, it has been compared to the trunk of a tree that feeds the branches and leaves of the broader capitalist system. The loss of a branch or leaves might do serious damage, but the loss of the trunk kills the tree.

Frieden, Jeffrey A., Banking on the World: The Politics of American International Finance (New York: Harper and Row, 1987)
Cohen, Benjamin J., In Whose Interest? International Banking and American Foreign Policy (New Haven, CT: Yale University Press, 1986)
Pauly, Louis W., Who Elected the Bankers? Surveillance and Control in the World Economy (Ithaca, NY: Cornell University Press, 1997)
Singer, David Andrew, Regulating Capital: Setting Standards for the International Financial System (Ithaca, NY: Cornell University Press, 2007)
Porter, Tony, Globalization and Finance (Malden, MA: Polity Press, 2005)
Helleiner, Eric and Kirshner, Jonathan, eds., The Future of the Dollar (Ithaca, NY: Cornell University Press, 2009)
Blyth, Mark, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (Cambridge: Cambridge University Press, 2002)
Maxfield, Sylvia, Governing Capital: International Finance and Mexican Politics (Ithaca, NY: Cornell University Press, 1990)
Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries (Princeton, NJ: Princeton University Press, 1997)
Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization (New York: Columbia University Press, 1991)
Katada, Saori N., Banking on Stability: Japan and the Cross-Pacific Dynamics of International Financial Crisis Management (Ann Arbor: University of Michigan Press, 2001)
Hall, Peter A. and Soskice, David, eds., Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (New York: Oxford University Press, 2001)
Shih, Victor, Factions and Finance in China: Elite Conflict and Inflation (New York: Cambridge University Press, 2008)
Webster, Merriam-, Webster's New Collegiate Dictionary (Springfield, MA: G & C Merriam, 1981), 426, 736
Wilson, James Q., Bureaucracy: What Government Agencies Do and Why They Do It (New York: Basic Books, 1989)
Simon, Herbert A., Administrative Behavior: A Study of Decision-Making Processes in Administrative Organizations (New York: Macmillan Company, 1957)
Worsham, Jeffrey, Other People's Money: Policy Change, Congress, and Bank Regulation (Boulder, CO: Westview Press, 1997)
Allison, Graham T., Essence of Decision; Graham T. Allison and Morton H. Halperin, “Bureaucratic Politics: A Paradigm and Some Policy Implications,” World Politics 24 (Spring 1972), 40–79
Almond, Gabriel A. and Verba, Sidney, The Civic Culture: Political Attitudes and Democracy in Five Nations (Princeton, NJ: Princeton University Press, 1963)
O’Connor, Karen C. and Sabato, Larry J., American Government: Continuity and Change, Election Update ed. (New York: Longman, 2000), 17
Braithwaite, Tom, “Arkansas Sharpens Debate on Bank Risks,” Financial Times, June 10, 2010, 3
Mattingly, Phil, “Jamie Dimon Joins Final Round of Lobbying on Financial Bill,” Bloomberg Business Week, May 27, 2010
Reinhart, Carmen M. and Rogoff, Kenneth S., This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009)
Minsky, Hyman P., Stabilizing an Unstable Economy (New Haven, CT: Yale University Press, 1986), 250–53
Johnson, Simon and Kwak, James, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (New York: Pantheon Books, 2010), 6
Vogel, David, “The Power of Business in America: A Reappraisal,” in Kindred Strangers: The Uneasy Relationship between Politics and Business in America (Princeton, NJ: Princeton University Press, 1996), 268–97
Henning, C. Randall and Kessler, Martin, “Fiscal Federalism: US History for Architects of Europe's Fiscal Union, Working Paper 12–1,” in Working Paper Series (Washington, DC: Peterson Institute for International Economics, 2012), 22
Lindblom, Charles E., The Policy-Making Process (Englewood Cliffs, NJ: Prentice-Hall, 1968)
Truman, David B., The Governmental Process: Political Interests and Public Opinion (New York: Alfred A. Knopf, 1968)
Dye, Thomas R., Top Down Policymaking (New York: Chatham House Publishers 2001)
Anderson, James E., Public Policymaking (New York: Houghton Mifflin, 2000)
Bickers, Kenneth N. and Williams, John T., Public Policy Analysis: A Political Economy Approach (New York: Houghton Mifflin Company, 2001)
Baumgartner, Frank R. and Jones, Bryan D., Agendas and Instability in American Politics (Chicago: University of Chicago Press, 1993), 7
Freeman, J. Leiper, The Political Process: Executive, Bureau-Legislative Committee Relations, rev. ed. (New York: Random House, 1965)
Berry, Jeffrey M., The New Liberalism: The Changing Power of Citizen Groups (Washington, DC: Brookings, 1999), 80
Sabatier, Paul A. and Jenkins-Smith, Hank C., “The Advocacy Coalition Framework: An Assessment,” in Theories of the Policy Process, ed. Paul A. Sabatier (Boulder, CO: Westview Press, 1999), 119
Kingdon, John W., Agendas, Alternatives, and Public Policies (Boston: Little, Brown, 1984)
Van Horn, Carl E., Baumer, Donald C., and Gormley Jr, William T.., Politics and Public Policy (Washington, DC: CQ Press, 1989), 103
Hamilton, Alexander, Madison, James, and Jay, John, The Federalist Papers (New York: Bantam Books, 1988)
Greider, William, Secrets of the Temple: How the Federal Reserve Runs the Country (New York: Simon and Schuster, 1987)
Clifford, J. Garry, “Bureaucratic Politics,” in Explaining the History of American Foreign Relations, eds. Michael S. Hogan and Thomas G. Paterson (New York: Cambridge University Press, 2004), 93
Carpenter, Daniel, “Institutional Strangulation: Bureaucratic Politics and Financial Reform in the Obama Administration,” Perspectives on Politics 8, no. 3 (2010), 825-46
Connolly, William E., “Pluralism,” in Blackwell Encyclopedia of Political Thought, ed. David Miller (New York: Blackwell Reference, 1987)
Alford, Robert R. and Friedland, Roger, Powers of Theory: Capitalism, the State, and Democracy (New York: Cambridge University Press, 1985), 92
de Tocqueville, Alexis, Democracy in America, eds. J. P. Mayer and M. Lerner, trans. G. Lawrence (New York: Harper, 1966)
Zetterbaum, Marvin, “Alexis de Tocqueville,” in History of Political Philosophy, eds. Leo Strauss and Joseph Cropsey (Chicago: University of Chicago Press, 1972), 715-36
Bauer, Raymond A., De Sola Pool, Ithiel, and Dexter, Lewis Anthony, American Business and Public Policy: The Politics of Foreign Trade, 2nd ed. (Chicago: Aldine, Atherton, 1972)
Milbrath, Lester W., The Washington Lobbyists (Chicago: Rand McNally, 1963)
Lowi, Theodore J., The End of Liberalism: The Second Republic of the United States (New York: W. W. Norton, 1969)
Hall, Richard L. and Deardorff, Alan V., “Lobbying as Legislative Subsidy,” American Political Science Review 100, no. 1 (2006), 69-84
Hojnacki, Marie and Kimball, David C., “The Who and How of Organizations’ Lobbying Strategies in Committee,” Journal of Politics 61, no. 4 (1999), 999-1024
Schattschneider, E. E., The Semisovereign People: A Realist's View of Democracy in America (New York: Harcourt Brace Jovanovich College Publishers, 1975)
Olson, Mancur, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1971)
Hirsh, Michael, “Why is Barney Frank So Effing Mad?Newsweek, December 14, 2009, 50
Lehne, Richard, Government and Business: American Political Economy in Comparative Perspective (New York: Chatham House, 2001), 139
Adler, Joe, “Who Speaks for the Big Banks? It's Not Always Clear,” American Banker November 8, 2011, 1
Rehm, Barbara A., “Bankers Form SuperPac for ‘Surgical’ Strike at Industry's Enemies,” American Banker, April 5, 2012, 3
Barth, James R., Caprio, Gerard Jr., and Levine, Ross, Rethinking Bank Regulation: Till Angels Govern (Cambridge: Cambridge University Press, 2008), 85
Wilson, Graham K., Business and Politics: A Comparative Introduction (New York: Chatham House, 2003), 89
Lavelle, Kathryn C., The Politics of Equity Finance in Emerging Markets (New York: Oxford University Press, 2004)
Spindler, J. Andrew, The Politics of International Credit: Private Finance and Foreign Policy in Germany and Japan (Washington, DC: Brookings Institution, 1984), 185
Woolley, John T., Monetary Politics: The Federal Reserve and the Politics of Monetary Policy (New York: Cambridge University Press, 1984), 181