Is the Economic Crisis in America a "Banana Republic-Style Event"?

As we struggle to deal with the Recession and its various economic crises, it is useful to look back on history as a guide. TheAtlantic.Com has up an article from a former IMF executive who things we should NOT look back to the Great Depression, but to the third-world IMF bailouts of the 80s and 90s for clues to what caused our problems.

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). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

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.

While I am certainly no financial whiz, this smacks of truth to me. We keep seeing Washington DC eager to bail out companies "too big to fail", to assume debt from failed enterprises, and to "tweak the system" in an attempt to turn back the clock of history. But why not allow failed companies to... well... fail? Because they contributed a LOT to your election, and their failure would bankrupt you for the next election cycle. The marriage of money and power always leads to problems for a democracy.