E-mail a friendNomi Prins
airdate November 3, 2009
Journalist Nomi Prins writes about politics, money and relationships, with articles appearing in Fortune, The Guardian, The New York Times and other publications. She's also a senior fellow at Demos, a nonpartisan public policy research and advocacy organization. Using her previous Wall Street experience—with posts at Goldman Sachs, Bear Stearns in London and Lehman Brothers—she's written a novel (The Trail, under her pseudonym, Natalia Prentice) and nonfiction, including Other People's Money and her latest, It Takes a Pillage.
Wall Street vet talks about the importance of taking a stand against the way the government is allocating economic relief money. (1:26)
Full Interview (8:55)
Nomi Prins
Tavis: Nomi Prins is the former managing director of Goldman Sachs who now serves as a senior fellow at Demos. She's author of the critically acclaimed new book about Wall Street called "It Takes a Pillage: Behind the Bailouts, Bonuses and Back Room Deals from Washington to Wall Street." It's a mouthful, it's quite a book. Nomi, nice to have you on the program.
Nomi Prins: Thank you so much.
Tavis: The title, "It Takes a Pillage," I think I get it, but explain it.
Prins: Well, the idea is that since last year's financial crisis, or at least the crisis that the banks had - the rest of the economy was already sort of in dire straits to begin with - there's been a tremendous subsidy for the banking industry from Washington and a lot of it, I feel, has kind of been extorted on the back of public money in order to prop up a lot of the risk and a lot of the trading activities that Wall Street did then and is doing now, after the fact and after trillions of dollars of money from the government.
And I think that is a pillage, when you take from the public to support your risk, that's not right. That's not the way things should be, and I think that is what has been accomplished by a lot of Wall Street.
Tavis: You call it a pillage; there are others who believe that these banks were too big to fail. How many times have we heard that?
Prins: That phrase kind of drives me crazy. It's as if these banks sort of spontaneously are these biological organisms or something that just grew out of control, and the reality is that the Federal Reserve has the ability to decide that banks can't get bigger. They have the ability not to merge banks together, which they didn't do last fall, they did the opposite.
They have the ability not to call banks certain names that allows them to have public money available to them, and they didn't. And so they decided to go on this idea of too big to fail, meaning if any bank falls it's too big to begin with, it will take the rest of the economy down with it. That was kind of the impetus for doing a lot of the bailout and I just don't believe that.
I believe that banks inherently have two jobs. They deal with individuals on checking accounts, on savings accounts, on providing mortgage loans and everything else, and then separately, as investment banks, they speculate, they trade, they create assets largely out of nothing sometimes and a lot of spin to sell them, and that's a very risky endeavor.
So when the government looks at these institutions as too big it's looking at both but it really should only be looking at the part that deals with the consumer and the customer. It shouldn't be looking at the risky trading speculative aspect of banks, and that's what it's done with this too big to fail policy.
I believe that the banks now, the ones that have been funded primarily with the most amount of federal money; they're actually too big to succeed, because you know what they're doing now? They're building more risk on the bank of now federal money as opposed to what they did before the crisis, which was build it on the back of money they borrowed from each other.
So the government stepped in and is kind of like that first bet on the table in a casino, and that's where these banks are now living upon.
Tavis: Will the American people ever get their money back?
Prins: Not a lot of it. There's been some payback of something called TARP, which is what kind of news considered as the be-all, end-all of the bailout of Wall Street, and that was a $700 billion package that was passed last October.
But TARP was only a small portion of trillions of dollars, literally trillions of dollars made available to the industry primarily from the Federal Reserve and the New York Federal Reserve, backing from the FDIC for certain money to be raised in Wall Street, not just what they usually do, which is back depositors and our deposits, and a lot of this therefore can't come back.
We're talking about literally almost $13 trillion worth of subsidies to that industry, and that's not coming back, even if some of TARP gets paid back.
Tavis: Not everybody has the courage to do this, but you have taken on individuals by name, in fact, but you make the case around the fact that there are a lot of folk in the Obama White House right now involved in this process who were a part of the deregulation that got us in this mess in the first place. I'll let you tell the story.
Prins: Well, exactly. Right now, for example, one of the key economic advisers in the Obama White House is Larry Summers, and Larry, of course, Summers was Treasury secretary back in 1999 and that was a very important year. We're almost coming up on the 10th anniversary of the repeal of something called the Glass-Steagall Act, and he was officiating that ceremony as Treasury secretary.
He's in the White House now and he came on the heels of, Summers did, of Robert Rubin, who was a fellow who was a Treasury secretary under President Bill Clinton who happened to have been a CEO before that at the firm I used to work for, Goldman Sachs.
And so there's a sort of switchover into this very important administrative position as Treasury secretary to do that. Both of them had the idea that you had to deregulate the banks, you had to mix these commercial banks and these investment banks together in order to be sort of competitive in the global economy and that the U.S. would fall behind if that wasn't the case.
The result we see 10 years later, and it took time for all these little banks to kind of merge and become bigger and more powerful and too big to fail, as it's now called, in order to get to a position where we ultimately had to prop them up with trillions of dollars of federal money and of government subsidies.
Tavis: I was just reading an article the other day, and there have been any number of these articles that have pointed out the relationships not just born of these individuals around or on the Obama economic team, but articles about their relationships with Wall Street. Is the Obama administration in terms of this economic team too cozy with Wall Street?
Prins: It absolutely is, because the other part of Obama's economic team is of course Treasury Secretary Tim Geithner, and he, and there was just a report out a few weeks ago, he has the number one person on his speed dial, the amount of calls he makes is to Lloyd Blankfein, who's the current CEO of Goldman Sachs.
Tavis: We're referencing the same article.
Prins: Exactly. Actually, on the back of that article I did another analysis looking at the prior Treasury secretary, Hank Paulson, who was the Treasury secretary when the bailout was being formulated, at the same time that Tim Geithner was head of the New York Fed.
The New York Fed is part of one of the 12 Federal Reserve banks that is closes to Wall Street, like, day-to-day that's what goes on. The chairman of the New York Fed at the time was Stephen Friedman, who happened to have been also on the board at the same time of Goldman Sachs. He was sort of working with Tim Geithner, who had many calls.
In fact, more communication with Hank Paulson, the Treasury secretary, was had with Tim Geithner, who's now the Treasury secretary, when he was head of the New York Fed as Paulson had with Ben Bernanke, who's chairman of the Fed.
So there was this really tight relationship. Paulson came from Goldman, Stephen Friedman came from Goldman, Tim Geithner was working with them on the bailout, he's now the Treasury secretary. So not only is it a cozy relationship with Goldman, which represents a lot of Wall Street as well as the rest of Wall Street, but it's also we are in a situation where Geithner can't possibly say any of that was a mistake because he was involved in putting it together.
Tavis: So quickly here, solutions. Now that we're this deep in, now that we have been pillaged, what do we do now? What are the solutions now?
Prins: Well, I think individuals have to know, really, to a large extent, what happened and how, by propping up the banking industry it wasn't just the government giving them money but it was also really backing the risks that they took.
They weren't backing individuals' risks, so while foreclosures are now at record highs, even after the bailout, even after the financial crisis, while unemployment is headed towards double digits, while it already is double digits in 139 cities throughout the country compared to 15 before the crisis, that we as individuals have to stand up and fight against it.
We have to get on the phone or emails or on lists with our congresspeople and say, you know what? This was the wrong way to allocate money, because in doing what you did you've created a situation where some of the banks are more powerful than they were before, paying bigger bonuses than they did before. Meanwhile, the rest of the economy is continuing to tank.
So we really need to reverse that situation and not take that as a thing, and we need to reinstate the Glass-Steagall Act, which will re-segregate the commercial banks from the investment banks so that we're not in a position where the government has to even think about backing the risk of all the trading that is now continuing to accumulate after the fact on Wall Street.
Tavis: It's a good read to get an understanding of how we got in this mess in the first place. The new book from Nomi Prins is called "It Takes a Pillage: Behind the Bailouts, Bonuses and Back Room Deals from Washington to Wall Street." Nomi, nice to have you on the program.
Prins: Thank you so much to have me on.
Tavis: My delight.
Back to November 3, 2009