By Simon Johnson The world’s largest banks have been accused of
many things in recent years, including taking excessive risk in
the run-up to 2008, doing great damage to the American economy
by blowing themselves up and then working hard to resist any
sensible notions of financial reform. All of this is true, but
it misses what is likely to be the most profound negative impact
of the banks’ behavior on most Americans. The banks’ actions led
directly to an increase in government debt, which in turn has
made the reduction of that debt by “cutting runaway spending” a
centerpiece of the Republican presidential campaign to date. As
a result of this pressure, Medicare now stands on the brink of
being eliminated as a viable form of social insurance. Yet the
executives who lead these banks – and the politicians with whom
they work closely – will not be held accountable this election
season. How is this possible? The economic mechanism through
which a bank-led financial crisis has a broader adverse fiscal
impact is st