Searching for Scapegoats
I am not a big fan of CNN's populist commentator Lou Dobbs but once in a while he invites some excellent guests on his show. On July 9th, 2008, he invited David Sirota, Paul Muolo, and David Cay to discuss who is responsible for the U.S. economic crisis. The following is an excerpt from the transcripts of that show:
The Bush administration and this Democratically-led Congress have done very little to help most Americans with our worsening economic crisis. It may well be up to Independent voters to pressure the presidential candidates to do something, if anything at all is possible to solve the crises that face us.
Joining me now, David Sirota. He is the author of the important book, "The Uprising: An Unauthorized Tour of the Populist Revolt Scaring Wall Street and Washington." I like the sound of that. And Paul Muolo, author of "Chain of Blame".
And it's out next week, is that right, Paul?
PAUL MUOLO, AUTHOR: It's out now.
DOBBS: Well let's get to the book stores now. "Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis."
And David Cay Johnston, he's the author of "Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense," another terrific book. I think we're three for three here tonight. David, good to have you with us as well.
DAVID SIROTA, AUTHOR: Thank you, Lou.
DOBBS: Let's start with this Senate legislation, the freeze in the Senate on legislation that would help those -- at least with the report to help those facing foreclosure. Why can't anything happen here?
MUOLO: Well, it boils down to money and politics and lobbyists. They're trying to figure out what exactly they should do with the program called the FHA, the Federal Insurance Program. And the question is you know, they're tinkering with the nuances here on the bill, having to do with something called gifting, how much of a down payment someone can make and get an FHA loan. There's a lot of lobbyists involved. And there's a lot of struggling homeowners out there. But what they need to do is create a floor for the housing market and any bit of federal help, aid, would help right now and that's what we need to get through this crisis, set a floor and this bill should get passed.
DOBBS: As Kitty Pilgrim just reported, three months at this point and that action has not been taken. What in the world is this so-called Democratically-led Congress -- I say so-called because I can't see any sign of leadership whatsoever on part of either Nancy Pelosi or Harry Reid. What's going on?
SIROTA: Look, I think the last point was right, that this is a congress that is controlled in many ways by big money. You've got the presidential candidates who are also in the throes of being pushed and pulled by issues of big money. You saw that on the FISA bill with giving immunity to telecom companies. You see it on this bill. You see it on their dances on issues like trade. Should we expand and extend NAFTA? There's not really much of an answer. So you have money essentially gridlocking Congress.
DOBBS: David -- go ahead.
DAVID CAY JOHNSTON, AUTHOR: Well I was going to say, the banks don't want to take a big haircut on these loans after they collected the fees. Unfortunately, the way the system works with the securitization of these loans and selling them off is you can't go into your bank anymore and say, hi, I need a forbearance, I want to make some arrangements so I can keep my house, because they'll tell you, well I'm sorry, we sold the loan, we can't negotiate with you. That's a real core problem in this.
DOBBS: Well, there's another core problem. That is, David, Congress has a 9 percent approval rating. That's an all-time low --
JOHNSTON: It's that high?
DOBBS: It's that high. I agree with you, by the way, David. I can't imagine who those 9 percent are. These are mumbling buffoons. By the way, they're make the preceding Republican do-nothing Congress look like a bunch of wildly excitable, ambitious people.
SIROTA: I think what this shows is how angry the country is generally at the political system. I think people -- we're at a moment now where people don't think the government's just not doing anything, people see that the government is participating in the crises at hand. The government not doing something on energy has something to do with gas prices. The government not doing something on the mortgage crisis has something to do with the mortgage crisis. This is a level -- these numbers are an expression of anger.
JOHNSTON: Yes, I agree with David 100 percent. I think these numbers show that people are beginning to recognize that many of their economic problems are the result of government policies that favor large corporations and the rich over their interests.
DOBBS: Well that's interesting because -- you wrote, Paul, in your book that you didn't believe that the current crisis, housing crisis, credit market crisis, was brought on by deregulation, but at the same time, you felt that it was pretty clear, the failure to regulate.
MUOLO: That was a problem in "Chain of Blame." We note that they didn't deregulate like they did with the savings and loans. They deregulate with the savings and loans, everyone crazy making junk bonds and big commercial loans. But here, they just didn't regulate. The FEC was asleep at the wheel which Lou Renerie (ph) pointed out in late 2006. And lo and behold, they're packaging these subprime loans into bonds. And the investor doesn't know what's in them really. And they're being sold overseas. And they're just trusting their bond salesman on Wall Street.
DOBBS: We're talking about 2.5 million people this year, 1.5 million people last year, we're facing foreclosure. We've seen Bear Stearns get bailed out. We've heard this -- I promised my wife I wouldn't call them any repulsive names anymore. The treasury secretary with his demonstrated incompetence, again, talk about there's not anything they can do for those being foreclosed upon. This is absolutely nuts.
SIROTA: And that has the chance, I think, to change our politics fundamentally. This is what I reported in my book, that there is really an uprising. People are really angry and people are actually taking action. You see people -- I saw people organizing new unions and new constituencies. I saw people down at the border, the minute men down at the border. That's a right-wing kind of protest to what's going on. There is a fundamental anger here at the politics of big money.
DOBBS: You say in your book David, whether -- in "Populist Uprising," you say whether it is economic issues or the Iraq war -- if we can put this up, there we go. "Whether it is economic issues or the Iraq war, there remains an enormous gap that mortally threatens the uprising." What do you mean by that?
SIROTA: Well, what I mean is that there's a gap between what the public wants and what the government is doing. We have consensus positions on what the public wants. The public wants -- opposes this war. The public doesn't want more NAFTA trade deals. The public wants a government that's cleaned up from big money. And that's not what the government is giving them. So there is this uprising where people are saying enough is enough.
MUOLO: Well the public needs a lobbyist now. They don't have a lobbyist in the mortgage fight. They don't have a dog in this fight, so to speak. And I think a lot of the public, they feel lost in the mortgage crisis. They feel there's no one there to help them and they certainly feel that Congress isn't doing a whole heck of a lot these days with it. So they need someone to be their advocate, so to speak, and I don't see it happening. It would be great to see a candidate grab the mortgage issue by the throat and do something.
DOBBS: David, you get the last word here.
JOHNSTON: Well a lot of the mortgage crisis is manufactured. About 70 percent of the people who are in subprime mortgages in the last few years would have qualified for a regular mortgage. But the big fees up front result in their being put into bad mortgages. The banking industry should take the haircut on that and we should get it resolved before we have whole neighborhoods going to hell in a hand basket.
DOBBS: Hell in a hand basket. David, I always expect a former reporter for the "Times" to elevate the discourse and I couldn't agree with you more, partner. David Cay Johnston, thank you. David Sirota, Paul Muolo, thank you very much. Gentlemen, we appreciate it.
There are many more books discussing the credit crisis and its implications for the U.S. and global economy. Below, I list a number of them that are out or soon to be released:
Richard Bookstaber - A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation
George Soros - The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means
Kevin Phillips - Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
Charles Morris - The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash
Robert Shiller - The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It
Mark Zandi - Financial Shock: A 360º Look at the Subprime Mortgage Implosion, and How to Avoid the Next Financial Crisis
And finally, even though it isn't directly analyzing the credit crisis, I highly recommend David Einhorn's book, Fooling Some of the People All of the Time: A Long Short Story.
It is important to understand how we got in this mess. People are hurting and I disagree with Senator Phil Graham and political commentator George Will that this is only a "mental recession" (they obviously need to venture out of their gated communities more often).
The magnitude of the housing bubble/securitization bubble/credit crisis is only now starting to take shape. Unfortunately, we are seeing signs that the economic hardship is spreading fast as Denmark, Spain, the U.K., and Ireland have begun to register falling house prices.
Who is to blame for this mess? We can point that finger at Alan Greenspan, Ben Bernanke, George W. Bush and his administration, the mortgage industry, Wall Street's pathological greed, complacent regulators and politicians, a population intoxicated with easy credit, and a corrupt ideological viewpoint that fervently believes in the "free market" will solve all economic ills.
But laying blame on anyone is not going help millions of people currently experiencing or who are going to experience serious economic hardship. Political leaders need to take a hard look at the governance mechanisms that govern all financial institutions, especially those of public pension funds. Failure to do so will just prolong the global economic recession and ensure future financial collapses.