From Morning Meeting Nov. 25, 2009, Rolling Stone's Matt Taibbi and the Financial Times' Chrystia Freeland discuss Matt's recent article at Rolling Stone and the divide between the recoveries on Wall Street and Main Street. Their analysis about what's wrong with the economic team Obama has surrounded himself with is spot on and until he starts listening to some different voices on how to fix our economy, Matt Taibbi is correct, the cycles of bailouts are going to continue to repeat themselves.
Ratigan: But Matt’s ultimate point is that we have all these people that are still perpetuating a policy that is supportive of the banking system for sure, regardless of who’s in there and an economy that is, has small business lending off a cliff, profits back at a record on Wall Street, one in four, one in seven mortgages delinquent; you know I could go on and on with these statistics but basically the economy was torpedoed and the financial markets were supported and the reality Matt is that it’s far more profitable not to lend money In this country. The fact of the matter is we’re giving banks money at a time when the government has rules that say you can make more money if we give you money if you don’t lend it.
Ratigan: And that is the inherent insanity of the entire situation. It’s like giving the banks money, legalizing the banks to make money without having to lend it is like letting the cops create a military state. They’re the custodians of wealth, the custodians of security have been completely compromised—you think it’s the people around the President that are largely responsible for that, correct?
Taibbi: I think so. I mean you have to remember that probably, if you were going to have a Nuremberg for the financial crisis, Bob Rubin would be one of the first people on the dock.
Taibbi: I mean he has a unique responsibility for what went wrong because he was not only responsible for the bad policy, the deregulatory policy under Clinton but he also helped destroy one of the biggest companies in the world in CitiGroup. And yet he was the guy who was put in charge and his people of being the architect of Clinton’s economic policies.
Ratigan: I think he’s got a great point, and I’m a, I was a Rubin, well listen I...I, Bob Rubin is an incredibly, obviously very accomplished, intelligent, etc., etc., etc. and they had an idea which was we’ll create a hyper-efficient system—we’ll create the most efficient financial system in the history of the world—as long as it doesn’t collapse we won’t have a problem. But it’s like an efficient sports car. It goes around the track real fast and then it blows into the wall, but if you’re able to bail out and give the crash to the tax payer.
Freeland: I just think we need to be careful because Bob Rubin isn’t in the White House right now and the big bailout of Wall Street—we have to really be clear…
Ratigan: Umm hmm.
Freeland: …wasn’t Obama’s bailout. The bailout of Wall Street…
Freeland: …was Hank Paulson’s bailout. That’s when the TARP happened. It was last… (crosstalk)
Ratigan: There’s no question that the car hit the wall last year… (crosstalk)
Taibbi: With the bailouts every step of the way Obama named…
Freeland: That is absolutely right and it was Obama’s choice to keep him, but it wasn’t Obama’s White House…
Ratigan: Let him finish. Go ahead Matt.
Taibbi: Obama got elected. On the day after he got elected he put two CitiGroup executives in charge of the economic transition team, especially Froman. Two weeks later they do a gigantic bailout of CitiGroup and that very same day those same, those CitiGroup executives hired Tim Geithner to be the Treasury Secretary. It’s an absolute quid pro quo.
Ratigan: I would say Tim Geithner as the head of the New York Federal Reserve since 2003 as the bank regulator, in New York, over these banks at a time when the banks were accumulating leverage, at a time when the swaps market was continuing to get crazier and crazier, that this, that these people believe, implicitly or explicitly that that type of modeling is somehow good for America, based over a period of years.
Freeland: Well don’t get me wrong; I’ve written a piece complaining…
Ratigan: I know, I’ve read it.
Freeland: …about how the guys at Goldman Sachs…
Ratigan: I get it.
Freeland: …think that they’re Ayn Rand characters, but I just think that we have to be careful to get our facts right and so for example if you talk about CitiGroup, these actions were taken when Obama was not yet in office and I think one of the original sins about the financial bailout was there should have been more strings attached. If you look at the strings that Warren Buffet attached to the money that he lent to Goldman Sachs, he got a better deal than the U.S. Treasury did.
Ratigan: But to allow the continued funding of the banks under the counsel of the Obama advisory team and not come out with a windfall profits tax to take back the profits being made this year and all the banks CEO’s compensation for the last ten years, because those people were paying themselves to accumulate risk that they couldn’t accumulate because they legalized doing that.
And the fact of the matter is that I think Matt’s onto something, is there’s a good question to be asked which is why is it we’re not seeing a windfall profits tax? Why is it we’re not seeing a restoration of the rules of lending and investing? And the question you’re asking is maybe there…or the answer you’re positing is maybe the reason you’re not getting that is because the people advising the President don’t want us to have that.
Taibbi: And also you have to look at the way the financial regulatory reform was you know what the White House proposals were on that this fall. All the things that Tim Geithner sent to the Hill were very, you know, soft touches on Wall Street. There was sort of a permanent bailout mechanism written into the resolution authority portions of the House bill.
Ratigan: That’s a fact.
Taibbi: And it required a sort of open revolt in the House to get those measures killed or watered down. That was the White House’s position. They wanted to have basically an automated future bailout system.
Ratigan: So that I can basically pay myself out, torpedo the system and then whoever is left has to pay. It’s totally nuts. And that was a Geithner… (crosstalk)
Taibbi: This was a built in safety net for the top twenty five banks in the country.
Freeland: This is where I’m with you. I think that financial reform has not gone far enough, absolutely.
Taibbi: And that’s all because that it was these people who were writing these bills.
Ratigan: So the issue you take Chrystia is to be cautious in assigning particular blame to Larry Summers or to Bob Rubin at this point because we don’t have enough information to know whose doing or did what. But we know that what’s gone on has been directly offensive and destructive to American and directly beneficial to the banking system.
Freeland: Yeah and look…
Ratigan: We just have to figure out who and why.
Freeland: I think bailing out the financial system, no matter what your politics, you have to be glad that that happened because we didn’t have a second Great Depression.
Ratigan: I disagree. I would say that’s like saying putting out a house on fire—we’ve got to be glad we put the house out that’s on fire…
Ratigan: But I’m more concerned about the fact that the people building our houses build houses that burn everybody in them down every ten years and everyone’s acting as though the fire was an accident and the fire wasn’t an accident. The fire was started consciously by individuals ten years ago and it came home. That’s my… (crosstalk)
Taibbi: It’s also a repeat of a pattern. Let’s not forget that.
Taibbi: This isn’t the first time we’ve bailed out Wall Street. You go back to the Peso Crisis, Long-Term Capital Management, the, you know…Greenspan cuts the rates eleven times after the tech crash, we have the housing bubble. It’s over and over and over again we have the same policies and it’s because it’s the same people who are setting the policies in the White House. I mean it’s not… it’s no accident that this is happening.
Freeland: Well that’s why financial reform legislation needs to be the central part of the discussion. That’s how the new house gets built.
Ratigan: Exactly and more importantly making sure that we identify who burned the house down, who made themselves rich burning the house down, getting the money back from those who made themselves rich burning the house down, punishing those who burned the house down and then building a new house that doesn’t allow people who like to burn houses down to build them. And they’re acting like the house fire was an accident and I think that’s where you run into a lot of problems.