The Great American Stickup: How the Political Class Mugged America and Handed the Money Over to Wall St.
Goodman: As we continue our discussion on the state of the economy, we’re by veteran journalist and Truthdig.com editor Robert Scheer. His book is just out; it’s called The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. What is wrong with the economy today? And how did we get here?
Scheer: Well, you know, you say a longtime journalist. I worked for the Los Angeles Times as a national reporter, and I covered these hearings in Washington when the Clinton Administration in the '90s basically fulfilled the promise of the Reagan Revolution. Reagan was not able to reverse the sensible regulations of the New Deal of Franklin Delano Roosevelt designed to prevent us from getting into another depression. And those regulations of Glass-Steagall, which Feingold was against -- was for keeping and against reversing, said that investment banks playing with supposedly rich people's money should not be allowed to merge with commercial banks that were using the deposits of people that were insured by the taxpayers and that these were different activities. And Reagan could never pull off that kind of deregulation. In fact, because of the savings and loan scandal at the end of his term, he actually had to sign off on increased financial regulation. But when Clinton came in, he brought in one of the big players on Wall Street, Robert Rubin, who has been head of Goldman Sachs, and basically turned to him and said, "You know, what do I need to do to get Wall Street on my side?" And they said, reverse what they considered to be onerous financial regulation. And Clinton delivered on that. He brought in Rubin then to be his Treasury secretary, who was followed by Lawrence Summers, who’s now the top economics adviser in the Obama White House.
And in addition to the Gramm bill that reversed Glass-Steagall, he did something even more significant for our current crisis. He -- after Summers had pushed it through, Congress signed off on the Commodity Futures Modernization Act of 2000. He was already a lame duck president. It was in the closing weeks of his administration. And this is the source of our whole problem, really, in terms of the housing meltdown, because we had these suspect derivatives that sensible people in the administration, like Brooksley Born, had warned against. No one knew what these toxic investments all about, the bundling of mortgages, which is what encouraged all of the wild subprime and Alt-A financing, because they were then going to be packaged together, made into securities, and then backed by credit default swaps, and all of this stuff that really didn’t exist. It certainly didn’t exist in Adam Smith’s capitalism, but it didn’t really exist even in Ronald Reagan’s capitalism. This newfangled -- these gimmicks that were developed and spiraled wildly out of control were made possible because of that Commodity Futures Modernization Act, which Clinton signed and which said in Titles III and IV, no existing government regulation, no existing government regulatory body, will be allowed to supervise these credit default swaps, these collateralized debt obligations that were there.
And as a result, we had this wild runup of irresponsible mortgage lending. The banks no longer did, as in the old days, worry about whether you could make your payments, whether there was value in the house, because they weren’t going to hold that mortgage for thirty years like in the old days. They were going to sell it, you know? And that wild runup of the market—I call it the Clinton bubble. I think his administration deserves or should be given the main responsibility. And that is at the source of our problem. And this has not gone away. This is why we’re threatened with a possible 'nother steep decline, or we're threatened with a decade of Japanese-type stagnation. And the reason is because we now, taxpayers, are holding, you know, trillions of dollars of this stuff, these toxic investments. And as a result, housing right now is in a terrible state of affairs. There are 11 million homeowners that are underwater. They owe more on their mortgages than their houses. That translates to about 50 million people living in houses that are now worth less than what they owe on them, and they’re tempted to walk away from them. That’s why we don’t have any consumer demand. And it’s not just the people who are in trouble with their own houses, which is a tragic enough story, but even if somebody’s made every payment, even if they own their home outright. If you foreclose a house or two in that neighborhood, it brings everyone else down.
And all this stuff that Obama has been talking about really does not meet the problem. And the basic problem is, instead of throwing money at Wall Street, which is what Bush did and what Obama continued to do, you should have had a moratorium on housing foreclosures. You should have said, "OK, Wall Street, we’ll help you, but you are now going to be forced, through bankruptcy courts, new rules we’re going to put in place, to adjust people’s mortgages so they can stay in their home." And all this malarkey about "We’ll do more infrastructure," you know, and so—they always do that. We’ll spend $50 billion on this—what he said in Wisconsin. What is that $50 billion? It’s chump change compared to, say, the $300 billion of toxic investments by one group, Robert Rubin’s bank, Citigroup. He went, after he left the administration, to be a top bigshot at Citigroup, made possible by the reversal of Glass-Steagall. And, you know, $300 billion. So compare that to the $50 billion they’re going to do for infrastructure for the whole nation.
And I think the sad thing about Obama -- you know, obviously, I supported him. I wrote columns thinking he was going to be great. An enormous disappointment. Somebody -- no one can explain to me -- I haven’t seen a satisfactory explanation. But in my book, I reprint the speech that Obama gave in the spring of '08, when he was a candidate. And it came three months after Robert Rubin had given a speech at Cooper Union saying we had no financial problem, we had no crisis. Three months later, Obama, at that same Cooper Union, said, you know, this is all due to reversal of Glass-Steagall, all due to reckless, radical deregulation. He spelled it out. And then, you know, mysteriously -- maybe not so mysteriously when you think that Wall Street became his biggest, financial community became his biggest campaign contributor -- he turned to the disciples of Robert Rubin -- the Lawrence Summers, Timothy Geithner, the very people that had, with Rubin, created this mess -- and said, "OK, you guys, fix it all." And they haven't fixed it. They’ve taken care of Wall Street. And as my subtitle in my book said, they mugged Main Street.
Goodman: Robert, you said this is what President Obama should have done. For example, a moratorium on all bankruptcies. What should he do now? Why "should have"? What could he do starting today?
Scheer: Oh, immediately he should push for bankruptcy courts to have the power to force the banks to readjust these mortgages. You know, we picked up their bad paper. Why don’t they help people now who are stuck? You know, the basic idea of the New Deal was that these were not innocent victims of Wall Street scams. So we have—this is why you have all this anger in the tea party and everything else. It’s very legitimate.
I’m not one of—and by the way, you mentioned Feingold in your—it would be a tragedy to lose Feingold. If there’s one person in the United States Congress that has called this correctly, that has stood up for the interest of ordinary people, it’s Russ Feingold. I mean, I can’t think—you know, maybe Bernie Sanders, but Russ Feingold has been at it longer in the Senate. I mean, he just has been right on this stuff from day one. And the idea that rage about what’s happened to the economy is now going to take its toll on him, the one guy who—one of the few who got it right, is really frightening. But that’s what happens when you have an economic breakdown. We saw it in Germany, for God’s sake. You know, you look—the demagogues scapegoat all the people. You know, they scapegoat immigrants. And what you have now is a lot of money, a lot of money, from the big banks and everyone else, going into lunatics’ camp—the campaign of lunatics. But why? Because, "Oh, get government off our back. You know, big government," ignoring the fact that, you know, this government did not get big and the debt did not rise because we’re trying to help firemen or school teachers keep their jobs. It happened because we have, literally, through the Fed and through the federal government, spent, you know, what? Three, four—committed three, four trillion dollars to make the banks whole.
So when you say what we should do right now, Obama could call for a moratorium. A moratorium, what? Two, three years on mortgage foreclosures. You know, that’s what you do when you’re facing a crisis. He could call for and push through a regulation, as well as legislation, saying the bankruptcy courts—remember, we had the change in bankruptcy law to hurt consumers, make it harder for consumers to declare bankruptcy. Well, they could push for new regulation, new laws, say, no, we’re not going to leave it voluntarily, as he’s now doing with the banks to somehow make readjustments of which there have been very few, has not dealt with the problem. They should say, no, this is the ball game right now. The ball game is keeping people in their homes. The ball game is preventing all those boarded-up buildings in suburbs of South Florida, Riverside, California.
I mean, if you travel in this country, there’s enormous pain, because people’s life savings, their sense of their worth, their piece of the American Dream, were tied up in their family. When you lose that home or when you’re suffering or you’re facing foreclosure, you lose not only your pride, you lose your ability to retire, to send your kids to school. I mean, the dreams of Americans are wrapped up in their home. And I don’t know why we’re talking about anything else right now. If we want to get the economy going again, if we want to get people back to work, if we want to get consumption up, what you’ve got to do is help people with that nest and that nest egg, which is their home. And there’s very little, precious little in Obama’s speeches, and certainly almost nothing in his actions, to help those homeowners.
Goodman: And how do you help people who don’t have a home?
Scheer: Well, you know, I know—there’s lots of things to do to help people home. But let me tell you, this is not a division between haves and have-nots when it comes to home owning. And one of my anger with some of the liberals around in the Democratic Party who supported this deregulation, they said this was going to help minority people get homes. You know, Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac were as rapacious as any—as Citigroup or Goldman Sachs. And the so-called liberal—this is dealt with in great detail in my book, which takes very few prisoners on either side, in either party. But Fannie Mae and Freddie Mac, with the support of people like Barney Frank and even many in the Black Caucus, said, "No, no, don’t touch Fannie Mae and Freddie Mac. They’ll help poor people get into their homes." Sure, a lot of minorities got into homes. They lost their savings. They’re now hurting. They can’t hold on to their homes. They’re being foreclosed. So, you know, the dream of American housing was not a have/have-not thing. It was supposed to be emancipation of Americans. It was supposed to be of them a piece of the pie.
So, first thing is, if we do this thing of keeping people in homes, we’re helping a lot of working people and poorer people. This is not something to benefit the rich. The rich make out like bandits in this kind of market. But secondly, if we can’t put a floor on housing foreclosures, if we can’t stem this bleeding right now, we’re not going to get consumption back, you know, and if we don’t get consumption back, because people were consuming based on their sense of what they’re worth, we’re not going to get the jobs back—jobs in construction, but jobs generally. And so, I would not divide the interest of homeowners and keeping them in their homes from the rest of the population.
Goodman: Robert Scheer, your last chapter, "Sucking Up to the Bankers: Crisis Handoff from Bush to Obama" -- has Obama done anything different about the economy than Bush, do you feel?
Scheer: No. Obama has been a disaster. And I say this as someone who was suckered into contributing to his campaign financially. You know, my wife maxed out in her contributions, pushing those buttons every time. I still get emails from the Obama campaign telling "We’re winning here, we’re winning there." But it’s been a disaster. Now, maybe, you know, if he could appoint Elizabeth Warren, you know, to the consumer agency, there will be a little bit of value in this deregulation—in this new regulation.
Goodman: What about that?
Scheer: Russ Feingold was absolutely right to vote against it. Hello?
Goodman: But what about Elizabeth Warren, seen as the frontrunner for this job, but seen as a—there’s a quiet campaign in the White House, or perhaps not so quiet, among people like Rahm Emanuel, who supposedly, rumor has it, are opposing her?
Scheer: Yeah, well, look, come on. You can’t look to the Democratic Party, you know, hacks, for leadership on this. First of all, most of these people are veterans of the Clinton administration. They’re the same people who destroyed Brooksley Born. Brooksley Born was one of the most competent lawyers in this country, dealing -- she represented banks. She understood more about these derivatives than anyone around, actually, when she was appointed to what was supposed to be a lesser agency, you know, the Commodity Futures Trading Commission. And she spotted this problem. You know, seventeen times in testimony before congressional committees, Brooksley Born sounded the alarm that there was going to be a housing meltdown, that this thing had gone wild, that we had enabled Wall Street graft. She knew the inside outside. It was people like Summers, who’s now in this administration, I think, who don’t want Elizabeth Warren—Timothy Geithner, and there are plenty of others. There are many Goldman Sachs veterans and other big Wall Street veterans in this administration, as well. And they destroyed Brooksley Born. And they’re threatened by Elizabeth Warren, because Elizabeth Warren represents consumers. She’s a brilliant legal mind, and just as Brooksley Born is. And Elizabeth Warren said, "Wait a minute. You know, what kind of, you know, government is this, when you’re caring about Wall Street and you’re ignoring the pain out there?"
And I have to stress this, Amy. This is not some abstract—you know, I studied economics in graduate school, and I could do some mathematical modeling and all that stuff. This is not a game. It’s not a political game. It’s not a mathematics game. They’re real human beings who invest their whole life putting shelter over their family, caring about their family. And when you go out in these communities—and I’ve done some of that—you know, it’s so depressing. You know, I mean, I talked to people in Riverside who cleaned office buildings, you know, in Long Beach and commuted to Riverside so their kids could live in a better neighborhood. And they bought this house, and they made the payments. They made the payments. They did everything they were supposed to do. And the neighborhood went into the toilet, and they lose everything. They lose everything. And that story is repeated millions of times in America.
And the guys who did it to us, they weren’t those vicious right-wingers. And, you know, it wasn’t all the people that we liberals like to attack. It was our friends. Let’s get that straight, you know? When I call this the Clinton bubble, you know, I mean it very seriously. It was our friends. It was people, you know, like the heads of Fannie Mae and Freddie Mac, who claim to be liberal Democrats. But they were being rewarded with enormous bonuses. You know, enormous bonuses. They made out just as well as the people running Citigroup. These were not government agencies. These were actually traded on the stock market, but posing as government-supported agencies. And the fact of the matter is that the damage that was done to us was done by people who talk a very good game. You know, Robert Rubin contributed money to the Harlem dance group, you know? Jesse Jackson even supported the reversal of Glass-Steagall. There’s a whole chapter in my book, you know? The people who acted in a very bad way, in this book, were people who we would probably be more comfortable talking to, you know, over a drink somewhere than the others. So, you know, my book, you know, it’s called "How Reagan Democrats—Reagan Republicans and Clinton Democrats Enriched Wall Street and Mugged Main Street." And the Clinton Democrats, who now control the Obama administration, are—you know, this is turning the henhouse over to the foxes. And I would say the record of Obama on this has been abysmal. He has been a frontman for Wall Street, and it is shocking.
Goodman: Robert Scheer, I want to thank you very much for being with us, longtime journalist based in California, worked for the Los Angeles Times for some thirty years, editor at Truthdig.com, author of many books. The latest, just out today in paperback, is The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street.