April 16, 2010
BILL MOYERS: Welcome to the JOURNAL. With all due respect, we can only wish those tea party activists who gathered this week were not so single-minded about just who's responsible for their troubles, real and imagined. They're up in arms, so to speak, against big government, especially the Obama administration.
But if they thought this through, they'd be joining forces with other grassroots Americans who will soon be demonstrating in Washington and elsewhere against high finance, taking on Wall Street and the country's biggest banks.
The original Tea Party, remember, wasn't directed just against the British redcoats. Colonial patriots also took aim at the East India Company. That was the joint-stock enterprise originally chartered by the first Queen Elizabeth. Over the years, the government granted them special rights and privileges, which the owners turned into a monopoly over trade, including tea.
It may seem a stretch from tea to credit default swaps, but the principle is the same: when enormous private wealth goes unchecked, regular folks get hurt - badly. That's what happened in 2008 when the monied interests led us up the garden path to the great collapse.
Suppose the Tea Party folk had dropped by those Senate hearings this week looking into the failure of Washington Mutual. That's the bank that went belly up during the meltdown in September 2008. It was the largest such failure in American history.
WaMu, as we were reminded this week, made sub-prime loans that its executives knew were rotten, then packaged them as mortgage securities, and pawned them off on unsuspecting investors.
SEN. CARL LEVIN: And that was your responsibility to make sure that the securities which went out to the investors were following notice to the investors of everything that they needed to know in order that the information be complete and truthful. That's what your testimony was, under oath.
DAVID BECK: It's a very real possibility that the loans that went out were better quality than Mr. Shaw laid out.
SEN. CARL LEVIN: And you don't -
DAVID BECK: A very real possibility.
SEN. CARL LEVIN: And there's a very good possibility that they were exactly the quality that he laid out, right? Is that right?
DAVID BECK: That's right.
SEN. CARL LEVIN: Okay. And you don't know, and apparently you don't care. And the trouble is, you should have cared.
BILL MOYERS: Then there's Lehman Brothers. During those black September days a year and a half ago, the Feds decided to let Lehman go. This led to America's biggest bankruptcy ever. In an admirable work of journalism this week, the New York Times reported that Lehman secretly controlled a company called Hudson Castle and used it to borrow money as well as to hide bad investments in commercial real estate and sub-prime mortgages.
But the week's award for sheer gall goes to a Chicago-area hedge fund called Magnetar, named after a kind of neutron star that spews deadly radiation across the galaxies. Thanks to the teamwork of the investigative reporting website "ProPublica," NPR's "Planet Money" project and "This American Life," we learned Magnetar worked with investment banks to create toxic CDO's - collateralized debt obligations - securities backed by sub-prime mortgages the management knew were bad. And then Magnetar took that knowledge and bet against the very same investments they had recommended to buyers. Selling short and making a fortune.
And late this week the Securities and Exchange Commission charged the godfather of Wall Street, Goldman Sachs, with fraud in earning a fifteen million dollar fee involving those complex CDO's, a hedge fund, and the housing market.
But, since we know all this, why is it so hard to hold Wall Street accountable? Even as we speak the banking industry and corporate America are fighting against financial reform with all the money and influence at their disposal Their effort is to preserve a system that would enable them to ransack the country once again.
So even if the Tea Party folks saw the light, what can ordinary Americans do?
That's the question I want to put to my guests, Simon Johnson and James Kwak. They have written this new book, 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. It's a must read - already a best seller -- and it couldn't have come at a better time. This book could change the debate over financial reform by tipping it in favor of the public.
Simon Johnson is a former chief economist at the International Monetary Fund. He now teaches at MIT's Sloan School of Management and is a Senior Fellow at the Peterson Institute for International Economics.
James Kwak is studying law at Yale Law School - a career he decided to pursue after working as a management consultant at McKinsey & Company and co-founding the successful software company, Guidewire. Together James Kwak and Simon Johnson run the indispensable economic websiteBaselineScenario.com
Welcome to you both. ...
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