Fairly long, so I will divide it into two parts. Transcript of 1/08/10 Bill Moyers Journal
pbs.org
BILL MOYERS: Welcome to the Journal.
The ancient Romans had a proverb: "Money is like sea water. The more you drink, the thirstier you become." That adage finds particular meaning today on Wall Street, which began this New Year riding a tidal wave of bonuses in a surging ocean of greed.
Thanks to taxpayers like you who generously bailed banking from the financial shipwreck it created for itself and for us, by the end of 2009 the industry's compensation pool reached nearly $200 billion. And despite windfall profits, the banks will claim almost $80 billion in tax deductions. And nearly $20 billion of those deductions will go to just three institutions — Morgan Stanley, JP Morgan Chase, and Goldman Sachs.
Ah, yes — Goldman Sachs, that paragon of profit and probity — which bet big on the housing bubble and when it popped — presto! — converted itself from an investment firm into a bank so it could get your bailout money. Now consider this: in 2008, Goldman Sachs paid an effective tax rate of just one percent. I'm not making that up — one percent! — while their CEO Lloyd Blankfein pulled down over $40 million. That's God's work, if you can get it. And, believe me, Wall Street bankers know how to get it.
What's their secret? How do the bankers pick our pockets so thoroughly with barely a pang of guilt or punishment? You will find some answers in this current edition of "Mother Jones" magazine, one of the best sources of investigative journalism around today. Most of this issue is devoted to what the editors call "Wall Street's accountability deficit."
In it, the Nobel Prize economist Joseph Stiglitz writes of the "moral bankruptcy" by which bankers knowingly trashed our economy and tore up the social contract.
The magazine's David Corn examines why there's no mass movement demanding fundamental change.
And blogger Kevin Drum tours Washington's heart of darkness from down Pennsylvania Avenue, over to K Street where the lobbyists cluster like vultures, then past the local branch of Goldman Sachs — also known as the U.S. Treasury — and up to Capitol Hill, where key members kneel in supplication to receive their morning tithes from the holy church of the almighty dollar. As Kevin Drum writes, a year after the biggest bailouts in U.S. History, Wall Street owns Washington lock, stock and debit card.
Kevin Drum, formerly with "Washington Monthly," is now the political blogger at "Mother Jones." He's here to talk about his report, along with David Corn, who's been covering Washington for 23 years and is now "Mother Jones'" Washington Bureau Chief. Welcome to you both.
BILL MOYERS: Welcome to both of you.
DAVID CORN: Good to be with you, Bill.
KEVIN DRUM: Good to be with you, Bill.
BILL MOYERS: Let me read you a letter that was posted on our website a few days ago from a faithful viewer. His name is Mike Demmer. I don't know him personally, but I like to hear from him. He says, dear Bill, I watch your program all the time. What I don't understand is how a bunch of greedy bankers could bring the world to the edge of catastrophe and then in less than a year, already move back to their old ways. How do they do it?
KEVIN DRUM: Well, that's the $64 million question. Or maybe it's the $64 billion question these days. Yeah, how they do it? They've got all the money. And they use all the money. And they use it in Congress to get rules passed and get laws passed that they want. They use it to lobby the Fed, they use it to lobby the S.E.C. They use it to lobby the executive branch. And they get rules passed that allow them to make a lot of money. Just like any of us would. It's not that American bankers are greedier than anybody else's bankers. It's that our rules, our laws, allow them to do things that they can't do everywhere else. We let them take advantage of the system.
BILL MOYERS: But how do you measure their power? Lobbying doesn't happen in the public, in the open. We can't sit in the bleachers and watch the game being played. How do you know they have this power?
DAVID CORN: You can read the lobbying reports. You know that there are scores if not hundreds of lobbyists. And where do they come from? They come from the committees that they're lobbying. People used to work on the committee, whether they were members, Congressmen or Senators, or staffers. And they spent a lot of time — because, ultimately, Bill, this is about knowledge. This is about information. This stuff is really complicated and convoluted. And, you know, you try reading any of one of these bills and figuring out what's actually being said. It's mystifying. And so, these guys who know the rules, they know the language, and they have the access, and they're giving contributions to the people writing the rules, have all the advantages.
BILL MOYERS: But Barney Frank would disagree with both of you. I don't know that he's read your piece yet, but I'm sure he will.
DAVID CORN: Yeah, I'm sure he would.
BILL MOYERS: Barney Frank, Chairman of the House Committee on Financial Services, and a liberal Democrat, said the other day, look, it's not — I'm not affected by campaign contributions. The members of my committee are not affected by campaign contributions. The problem is democracy. He says everybody sitting on this committee represents somebody back home, a local bank, a car dealer, an insurance company. And they come to the committee and they press, as you do in a democracy, for their interests as you just said.
DAVID CORN: But wait a second. I mean when you look at something like derivatives — derivatives, which were used to enable the subprime lending mess that led to the near collapse of the U.S. and global economy- I'm not sure there are bankers back home who are lobbying, you know, the committee. There aren't local derivative dealers that you meat in Main Street, when you go back to town hall meetings. It's a very small group of people who understand this. And we have seen-- the "Wall Street Journal" is reporting this week that there's no real action on regulating derivatives.
BILL MOYERS: I brought that story, because I wanted to read it. Quote, "Lobbying by Wall Street has blunted efforts to step up regulation on derivatives trading by carving out exceptions or leaving the status quo in place. Derivatives take blame for some of the worst debacles of the financial crisis. But a year after regulators and critics began calling for an overhaul in the way they're traded, some efforts have been shelved, and others have been watered down." What does it say when "Mother Jones" and the "Wall Street Journal" reach the same conclusion? That our government cannot stand up to the lobby even on an issue like derivatives, which were at the root of much of our problem over the last few years?
KEVIN DRUM: Well, it doesn't say anything good. And derivatives are a good example of how this stuff works. I mean, take a look at what happened. Derivatives were at the center of the financial meltdown in 2008. And at first everybody was all ready to regulate derivatives. And the big idea was to put them on an exchange, like a stock exchange, where they're all traded publicly and transparently. What happened was there were corporations — you know, if you're an airline, and you're worried about the price of jet fuel, you might want to buy a hedge. Hedge the price of jet fuel. And so, the airlines and some other companies went to Congress and said, look, those are derivatives, but they shouldn't be traded on the exchange, because that's not the financial stuff that blew up the world. No problem. Everybody pretty much agreed they ought to be exempted from that. But then it's all in how you write the rules. So, the rules got written. And as they slowly got changed, it turns out you've got to define who is an end user. Who is a corporation, as opposed to a bank? And the rules got written and they got written a little more broadly and a little more broadly until eventually if you read the rules right, it looked as though pretty much anybody was an end user. Goldman Sachs would end up being an end user. And 80 percent of the derivatives would have been exempt.
BILL MOYERS: And what does that say to us?
KEVIN DRUM: It says that the banks are in charge. And they're in charge, they get people, you know, right now, banks are in, you know, nobody wants to be around Goldman Sachs, right? So, what they do is what you were talking about. They get the car dealers and they get the local banks and the credit unions and so forth to basically front for them. And these corporations go in and they say, "We want an end user exception." And they get it. And then all it takes is a few congressional aides here and there to change the wording a little bit--
DAVID CORN: Now, the interesting thing is at this point having a conversation like this, we've already lost. Because now we're arguing about how the technical side of things are handled. And we- what the Wall Street collapse didn't really lead in Washington or anyplace else was sort of a reevaluation of what finance is supposed to be about. And what government's role might be in advancing a financial system that benefits citizens at large. Wall Street has become a place- and the banking industry, where you don't lend money to improve local businesses and industry. You basically, you know, create new- they call them instruments, devices- to make money yourself. It's really turned into nothing except a casino, in which they lend money and then they make bets and side bets and bets on the side bets about what's going to go up and down. So, a lot of the action is really, at the end of the day, not about providing credit and keeping capital flowing. It's about what- how they think they can make more money through more trades.
BILL MOYERS: Yeah, I was struck by the — by that paragraph in your story, where it said the financial industry has persuaded us, convinced us over the last 30 years that the purpose of the financial industry is not to serve companies needing capital or consumers needing credit, but to make money for themselves. And you go on to say that in a very fundamental way, this financial lobby has changed America. What do you mean by that? That goes deeper than campaign contributions and money and even influence in Washington. You say they've changed our framework.
KEVIN DRUM: Yeah, yeah. It goes a lot deeper. It's what Simon Johnson the chief- former chief economist for the I.M.F., it's what he calls Intellectual Capture. And-
BILL MOYERS: Intellectual Capture.
KEVIN DRUM: Right. It goes beyond regulatory capture, where, say the banks control the S.E.C. That's one thing. Intellectual Capture means that essentially the financial industry has convinced us, you know, in the '50s what was good for General Motors was good for America. Now it's what's good for Wall Street is good for America. And they've somehow convinced us that we shouldn't ask about what's right or what works or what's good for America. We should ask what's productive, what's efficient, what helps grow the economy.
DAVID CORN: This is the Stockholm Syndrome. Where you're hostage starts identifying with the people holding them captive. Americans have been, you know, have been talk- said- told over and over again that if the Dow's going up, if Wall Street's making money, it's good for you.
BILL MOYERS: Often when workers are being laid off. That's-
DAVID CORN: Yeah, but other measurements of the economy aren't taken to- aren't held in such high esteem. And so, when I was talking to members of Congress and pollsters about why there was not more popular, you know, revulsion against Wall Street that was leading to action in Washington, Congressman Brad Sherman — he's a Democrat from California. He led during the whole TARP argument- what he called the skeptics caucus. They were kind of opposed, but they were just raising questions. And he says the problem is that people are told that if you don't serve Wall Street, Americans will be out on the streets fighting for rat meat. That basically the whole-
BILL MOYERS: Rat meat?
DAVID CORN: Rat meat. Those- that's his- those are his words, not mine. I never- think I never would come up with that. With that image. But that- basically, we'd all be out fighting for grub on our own. And that so- what happens is people are — while they're angry at Wall Street, particularly on the, you know, on the corporate compensation front, which is very easy to get angry about. They also are fearful of taking Wall Street on, because they've been taught that if, you know, if the DOW falls, if you take on the big banks, it's going to be bad for all of us. So, it really is this Stockholm Syndrome, where we're forced to identify with people who are holding us hostage without our interest in mind.
BILL MOYERS: So, your conclusion from all of this is, and I'm quoting you, "…the simplest, most striking proposals for reigning in bank behavior aren't even getting a serious hearing."
KEVIN DRUM: Back in March of last year Congress was considering a bill to deal with bankruptcy and home foreclosures. And the Obama Administration thought this goal was a shoe in. They really didn't think they were going to have any problem passing it. And it failed. And--
BILL MOYERS: Fail? You mean it was beaten?
KEVIN DRUM: It was beaten by the banks. They got the bill rewritten. And in fact, not only did they get the bill rewritten the way they liked it. They actually got several billion dollars of extra bailout money put in at the same time.
BILL MOYERS: This was the cram- so called cram down proposal that was designed to help homeowners who were in trouble get through the hard times?
KEVIN DRUM: That's right. And I think what happened was the Obama Administration saw what happened with a bill that they thought would pass easily, and they realized what they were up against. And so, even their original proposals, I think they were watered down even before they went to Congress. And then once they're in Congress, they get watered down some more. And once it gets to the Senate, it's going to get watered down even more.
BILL MOYERS: So, if we get financial reform at all, it will be financial reform riddled with loopholes to benefit the very people who got us in this mess in the first place?
KEVIN DRUM: It's going to be financial reform on the margins. You know, complexity is the friend of the financial industry. If you really want to control them, you need simple rules. So, for example, Paul Volcker, former Fed Chairman. He thinks that we ought to simply prevent banks from being in the securities business. They should make loans. They should underwrite bonds. They should give advice on mergers and acquisitions. The sort of things they've done for years. But they shouldn't be trading securities. We should leave that to hedge funds. We should leave that to other people for--
BILL MOYERS: Take the- let them take the big risks. Don't take the big risks with the money you and I deposit.
KEVIN DRUM: Don't take risks inside the banking system, where you can blow up the world.
DAVID CORN: Where you're also federally insured.
KEVIN DRUM: Right.
DAVID CORN: Right? With our money.
BILL MOYERS: It's government-backed money that they're taking the risk with, right? And so, they tried to eliminate that.
KEVIN DRUM: And that- but that was never on the table. That sort of simple regulation was never on the table.
BILL MOYERS: Why?
DAVID CORN: That's what I mean. They're — for all the talk of what goes on in Washington. And, you know, there's reams of newspaper stories. There are hearings every other week. I mean, there's a lot of activity on this front. But it's on the edges, and it's not about any paradigm shifts. It's about just trying to keep things going as they are. You know, so the airplane, you know, has a few holes in the wings. Let's patch it up and keep flying the same way. And this is where, you know, I think Kevin's right. You need someone to step in whether it's the President or some other voice and say, "Wait a second. There's something cockamamie about the entire system. There's something rotten at its core. We want to look at it deep down."
BILL MOYERS: But don't you think people sense that? That there's something rotten at the core?
DAVID CORN: Yes! But I think they don't know where to turn to. I think a lot of people would follow the President if he did this. He made an early decision in his presidency. And it happened even before he was elected. It was, you know, September 2008, when the market tanked that day and John McCain was flailing and not knowing whether he was going to listen to Newt Gingrich or somebody else. And Obama came out with press conferences, surrounded by Robert Rubin, Larry Summers, and all the guys who had a hand in what went wrong. And saying, hey, I'm with the adults. What he was saying, really, was, I'm with the conventional thinkers.
KEVIN DRUM: There's also tremendous pressure on presidents. I mean, when Bill Clinton came into office, there were things he wanted to do. And he learned very quickly that he had to do what the bond market wanted him to do. And he famously said what? "I have to do what the bond market says?"
BILL MOYERS: What does that mean? To do what the bond market wants?
KEVIN DRUM: It basically means doing what Wall Street wants. It means that if you run a big deficit, if you raise taxes, the interest rates will go up. The economy will tank. And that's what he was told. And eventually he caved in.
BILL MOYERS: In the magazine you have a story about how there was a hearing before Barney Frank's House Financial Services Committee. This was on the derivatives reform. Called seven witnesses for the banking industry and only one critic of the banking industry. And he'd only gone six and a half minutes before the Chairman cut him off. Now, what does that tell you?
KEVIN DRUM: It tells you that the banking industry has convinced us that only the banking industry has the expertise to deal with these very, very complex issues. And we bought it. We all believe that. These guys are the experts. And it is very complicated. This stuff is very, very complex. And that is exactly the reason why you need simple rules to rein it in. Because the more complexity you have, the more loopholes there are. The more you can take advantage. The banks-
BILL MOYERS: But you said a moment ago that you have to save the bad guy to serve the good guy. The airline industry needed the quote derivatives in order to get that, they had to go and give the banking the very- almost the same power they had prior to the meltdown.
DAVID CORN: Well, they don't have to
KEVIN DRUM: They didn't have to, but they did.
DAVID CORN: Yes.
KEVIN DRUM: It probably was-
BILL MOYERS: And they did because?
KEVIN DRUM: It probably was a good idea to try to exempt ordinary corporations who were just trying to hedge uncertainty. But then they took that and expanded it. They didn't have to do that. They did that because the banks were in there lobbying. And it looked like they could get away with it. I mean, the wording was very, very tricky. I mean, you would never notice it unless you were a real expert and looked at the legislative language and realized that a word here and a word there and a word here changed the whole thing.
DAVID CORN: It's like money in politics, which we're talking about a little bit, too. You try to set up these convoluted rules to deal with campaign cash and deal with constitutional issues and it's almost, you know, it's- I won't say it's impossible — but it's tremendously difficult to do it in a way so that you don't leave openings for others to take advantage of, particularly when they have access to the people writing the laws. I mean- Mark Mellman, a Democratic pollster told me, listen, if 99 percent of Americans can't understand derivatives, you can't regulate derivatives in our Democratic process. And I think there's a lot of truth to that. I mean, people have to understand it. If only the people who benefit from them understand what's going on, they have the leg up. And there's no way for average citizens to even enter the process.
BILL MOYERS: Well, yeah, the one guy who goes into the House Financial Services Committee and raises questions about derivatives, he's given six minutes and shown the door, right?
DAVID CORN: Right.
BILL MOYERS: What does this say to you from your many years in watching Washington? Barney Frank's committee, The House Committee on Financial Services received more than $8 million from the industry last year, 2009. Might that explain why seven witnesses for the industry got a hearing?
DAVID CORN: Well, the House Banking Committee is called a money committee. And Congress on the House and Senate side, there are couple committees that they refer to as money committees. Not because they necessarily deal with money. It's because if you serve on that committee, you have access to a lot of money. Campaign cash. Because you deal with industries that are wealthy. As Kevin said, the banks have all the money, literally. And they will give money to people on the committee, if not to vote their way, at least to hear them out. So, their witnesses get perhaps more attention at some of these hearings. And also what the Democrats do, and it's common practice, is you take vulnerable freshman and you put them on the House Banking Committee so they can raise a ton of cash and maybe scare away Republican opponents.
KEVIN DRUM: This is why Barney Frank can tell you he's not affected by campaign contributions. Well, maybe he's not. His seat is safe. But, you know, there's a lot of people on his committee, the freshmen, the second term congressman, who are affected by money, because they do need to get reelected.
BILL MOYERS: Did you see the posting on TalkingPointsMemo.com this week? While Congress was trying to write these new rules to clamp down on the risky derivative trading that we were talking about, several of these New Democrats were in New York meeting privately with executives from Goldman Sachs and J.P. Morgan. And they also managed, while they were here, to sandwich in a fundraiser. I mean, does this raise your eyebrow just a tiny bit?
DAVID CORN: Well it does, and I mean, this stuff happens all the time. It's not new. And, of course, you know, we're talking about the Democrats, because they control Congress. Now, look, Republicans do it when they don't control it. And when they had control, they had lobbyists actually in writing legislation, as well, on financial and other industry matters.
Why do these people feel they can do this without any risk to them? Well, that's because I don't think their voters or voters in general are saying, "Wait a second. This really ticks me off. Why are you meeting with Goldman Sachs and J.P. Morgan? These guys who nearly, you know, brought down our economy. Why talk to them at all outside of a hearing room? You know, outside of grilling? You know, let alone, why take cash?" I mean, our whole system where the guys in charge of regulating or writing the laws would take cash from the people who want favors, you know, it's kind of, you know, bizarre to begin with.
BILL MOYERS: It's a little bit like going to the umpire behind the plate before a game, isn't it? And saying, you know, "Here's $1,000 bucks for whatever purpose. I'll lend it to you."
DAVID CORN: Exactly. So, but there's not the popular revulsion against this S.O.P., the standard operating procedure that happens all the time. And even after what we've seen with Wall Street and even after people who are indeed mad at least in a general way with big banks, these guys still feel they can, you know, fly up or train up to New York City and hang out with them. Take their money. And then go back to Washington and do the people's work?
BILL MOYERS: Look at this. This is a list of all the contributions over the last 20 years to Members of finance-related Congressional Committees. Let's just take the first eight. Out of the first eight, six of them are Democrats. And those six Democrats have received from the financial industry some $68 million. What does it mean to take that much money? And it's Democrats at the top of this.
KEVIN DRUM: It's Democrats and Republicans. But, yes. Look, there's no way you can take that money. I mean, if you talk to Chuck Schumer, you talk to Barney Frank, you talk to these guys. They'll tell you that they take the money, but then they're going to do the right thing anyway. Well, that's just not possible. You know, Chuck Schumer to take an example, he raised so much money up through I think 2004-2005. He actually stopped taking personal contributions.
He had so much money, he stopped taking contributions and headed up the Democratic fundraising Senate Committee. The overall Senate Fundraising Committee. Raised a couple hundred million dollars, a lot of it from the financial industry. And that went to all Democrats. Not just Schumer. It went to all Democrats who were running for the Senate. Well, there's no way you can take that money and not at least be leaning in their direction, one way or another.
BILL MOYERS: Well, let's one example that you report in your story in "Mother Jones." This is the carried interest rule. The one that declares that compensation from capital gains will be treated as ordinary income. So that the tax rate for hedge fund managers will be 15 percent instead of 35 percent.
They're paying a lower tax rate than secretaries, janitors, nurses, school teachers, members of our team here. What happened when reformers tried to eliminate that loophole?
KEVIN DRUM: If you're running a hedge fund, you are using other people's money and investing it. Now, by any ordinary definition, that's just ordinary income. If I make ten percent or 20 percent, I'm paid basically a commission, that's ordinary income. But the law right now says it's capital gains.
There no excuse for that. There's no excuse for it to be taxed at the lower capital gains rate. It should be taxed at the higher rate. In 2007, after Democrats took over Congress, there was a movement to change that. To tax it as ordinary income, which is how it should be taxed.
And what happened was that the hedge funds who had not really had a big lobbying presence on the Hill before. Because they weren't regulated, so they didn't really need to. They suddenly got religion. And the private equity contributions to Members of Congress suddenly skyrocketed. And eventually Chuck Schumer decided that he would only support a change to the law if it also affected some other industries. And that was just enough to get opposition from other quarters and the bill failed.
DAVID CORN: He basically found a poison pill way to kill it. And Chuck Schumer could say, "Hey, you know, this is a New York issue. Hedge funds are based in New York."
BILL MOYERS: My constituents.
DAVID CORN: "For my constituents." But you know, but really. I mean, you look at all his constituents out in Staten Island and Brooklyn and upstate New York. And you say, "Does this really serve them? So that the guys who play with money, the hedge fund managers, you know, personally, are taxed at 15 percent rather than 35 percent. Is that really a good deal for everybody writ large? The answer, of course, is no.
BILL MOYERS: You know, I've been around a lot longer than the two of you. And I'm still amazed, though, at how brazen this is. I mean, capital gains are, as you said, the profits you make on investing your own money. But these guys, as you also said, were investing other people's money and getting a piece of the action. Under what Webster definition can you call that ordinary income?
KEVIN DRUM: You can't. That is what makes this so brazen. They're not just lobbying for things, "Well, you could argue one way or the other. Maybe one side is right." This is something where there's simply no excuse. And yet, they get away with it anyway.
BILL MOYERS: How do they get away with it? Because, the tea party was about taxes, right? The — one of the causes of the American Revolution was unfair taxation. And yet--
DAVID CORN: We've been talking a lot about politicians and money. There's something they care about more than money, ultimately. And that is votes. That is their job, you know, protection. People in Congress generally want to win their next reelection |
