Down Goes Another Bubble: A Conversation With Doug Henwood

Christian Parenti (Rail): About ten years ago we did an interview, and I thought we should revisit some of the same questions because, of course, reality has turned full circle and we’re in the midst of another bust.

Doug Henwood: Bigger bubble, bigger bust.

Rail: And this time a very serious bail out, very serious government intervention. What is your take on the bank bailouts, the TARP? I ask this because you have a position that’s different from many on the left.

Henwood: Some sort of bailout was absolutely necessary. We didn’t want a rerun of the bank collapse of 1929-32 when 10,000 banks failed. The implosion of the financial system led, in large part, to the Great Depression. We had to do something to prevent that from happening, we had to do something to prevent the credit machinery from imploding—to keep a crisis in confidence from getting completely out of control.

Of course, if you’re the kind of person who wants to see the whole system come crashing down, you don’t want a bailout; you want to see everything fall apart and hope that you can pick up the pieces. I’m not that optimistic that “we”—whoever “we” are—can do that. I was not willing to risk throwing scores of millions of people out of work on a political bet, a very long political bet. And so I thought that some kind of bailout was absolutely necessary.

ATM in the Anacostia neighborhood, Washington DC. Credit Linh Dinh.

However, what we’ve seen—first in the Bush administration and now from the Obama administration—is that the public is getting nothing in return for the vast amounts of money spent. We don’t know where the money is going—it’s completely opaque. The Fed has admitted that they either don’t know, or they’re not telling. There was an amazing exchange in Congress a few weeks ago between the Fed’s Inspector General, or whatever her title was, and a Republican congressman who was asking her where the money has gone. She was either incapable of giving an honest answer or didn’t know the answer but she just couldn’t even lie effectively. It was remarkable. We don’t know where all this money is going.

And we’re not getting any significant institutional change out of it. The Obama administration seems to want to recreate the status quo before the bust. They occasionally talk about creating a new economy, a new economic model, but they’re not really doing it. They really seem to be in awe of Wall Street power and unwilling to challenge it in any significant way.

Rail: Did you expect such problems with the bailout even if it was necessary? And why do you think the Obama administration has pushed the same old agenda?

Henwood: I didn’t expect a massive transformation from Obama. I knew he had a lot of support in Wall Street and is not the kind of guy to rock the boat. He’s not going to expropriate the expropriators. But, with Wall Street in such disgrace, people around the world and across the political spectrum think that Wall Street and its allies in other countries had a lot to do with wrecking the economy. Obama could have moved aggressively to re-regulate and create a more stable, public-spirited financial sector. Take a look, for example, at Larry Summers: ten years ago, he was very critical of finance, very critical of speculation, wondered about what kind of securities markets we really needed. He asked some very interesting questions. Now here he is ten years later, and he’s made a lot of money on Wall Street. He made five million dollars in 2007-2008 working one day a week for a hedge fund. So the bankers walked all over Obama. I didn’t expect much, but I did expect a little more.