August 8, 2008
BILL MOYERS:Economists of every stripe agree that the credit crisis is out of control. For example, Charles Calomiras of the conservative American Enterprise Institute, said this week, "We do need some regulation, smarter regulation, to prevent the abuse of the safety net." And the economist Dean Baker told the same reporter, "Wall Street just ran wild. It was some mix of irresponsibility and downright greed."
Dean Baker is with me now. He is co-director of the Center for Economic and Policy Research in Washington, D.C., and author of the much-read blog BEAT THE PRESS, where he spares no one in the media, including yours truly. Also with us is Bob Herbert, the nationally syndicated columnist for THE NEW YORK TIMES, whose book, PROMISES BETRAYED, is one I highly recommend. Gentlemen, welcome to the Journal.
DEAN BAKER:Great to see you, Bill.
BILL MOYERS: Both of you keep your eyes on issues of fairness in America. And we just saw a report on how working people with low incomes are bamboozled by rapacious lenders who make money out of other people's poverty. So I want to ask you, Dean Baker, how is it we've come to accept a predatory economy as the American way of life?
DEAN BAKER:Well, basically we adopted this policy of anything goes, so that if Wall Street business could dole it and they could make money on it, we let them get away with it.
You know, the fact that sub-prime mortgages had more than doubled as a share of the economy, that should have been, you know, just an alarm bell sounding off to everyone. And this was, you know, I'm an economist. I see this data. But, you know, this widely known. But yet, people are just looking the other way. And we knew people were being taken advantage of. We knew it was going to end very badly.
BILL MOYERS:You're not an economist. You're a reporter who tell the stories. And you've been telling the stories of this for some time now?
BOB HERBERT:Sure. I was out in Chicago with a woman predatory lending, in terms of mortgages. She was about to lose her home. They were going to foreclose the home. The woman was elderly. She was ill, and she was blind. And I sat in her living room with her attorney. And she's showing me these papers. They were still offering she was getting offers in the mail for another mortgage on a house, to refinance again. And she was getting offers in the mail to take out additional credit cards.
The final loan that she had signed, that pushed her over the edge, and caused her to lose her home, she signed in the hospital. The mortgage broker came into the hospital, and the woman is almost blind. And she had no idea what she was signing.
And as far as I understood, there was no hope. She was going to lose her home. I think one of the reasons this sort of thing is happening is because you don't have anyone who's looking out for the interests of ordinary people, whether they're middle class or whether they're poor. The government, for a long time now, has been on the side of the great corporations, on the side of Wall Street, on the side of the financial services industry. So who looks out for the little people?
DEAN BAKER:That's exactly right. No one is looking out for them. And again, this is, you know, you have this great effort now to, you know, all the people who should have been looking out, the last six, seven, eight years, are all going, "Oh, well, who could have known? Who could have known?" And they'll put Alan Greenspan here at the pedestal, because he's going oh, he had no idea this was going on.
And you had to try not to know this was going on. Certainly, someone like Alan Greenspan, our reserve board chair, had all the data I have times a thousand. He absolutely knew what was going on. And, you know, he was doing his best to look the other way, because you had a lot of big interests who were making a lot of money. You could prey on people, as, you know, as was shown.
BILL MOYERS:How did the media ignore it or not deal with it? How did the two parties fail to rise to the occasion? Why did we accept it?
BOB HERBERT:I think the media has sort of, in many cases, gone along for the ride. It's almost like with the war in Iraq. I mean, you just had so many people in the media who thought that the war in Iraq was a good idea and never blew the whistle, or whatever
Because I think the media's part of the establishment, which is where the establishment has gone these days. When I go around the country talking to ordinary people, the thing that I hear over and over again is that people think they really do not have a voice, that they may feel that something is wrong, they may have an idea of something that should be changed. But they don't think that they can translate that into action. That they are not heard in Washington.
DEAN BAKER:I'd like to pick up on that point about the media. I mean, you know, I'm writing about their reporting on economic issues. And, you know, it's a real simple thing sometimes. You just look at some of these articles. So, you know, they're writing something about mortgages. You know, well, they call up someone at Citigroup. You know, and they think that's good. I mean, it's fine to talk to someone at Citigroup. I'm not saying that-
BILL MOYERS:They're calling somebody that has a stake in-
DEAN BAKER:Yeah, yeah. And they don't think like the person has a stake. In fact, I remember through the we actually did a search. And we looked, who is the most widely cited person about the housing market. It was David Lereah, who's the chief economist of the National Association of Realtors. And very often, that's the only source. And I actually had a reporter for a major newspaper, not a new reporter, someone who had been there for years, asking me, "Do you think David Lereah's biased?" I just didn't know what to say. I mean, I don't want to say, "Well, I think how could you not think he's biased?"
BOB HERBERT:I think part of it is just common sense. I mean, you know, you learn this with the nuns back in grammar school. If you take the watchdog out of the picture, if you just get rid of regulation oh, we don't need regulation any more, you know, do you think that maybe some kind of chicanery is going to be out there? You're talking about things running wild? I mean, that's exactly what happens.
BILL MOYERS:Your colleague, Gretchen Morgenson, who's been on this show-
DEAN BAKER:Been all over-
BILL MOYERS:Yeah. She says, "The credit crisis has exposed and worsened a dangerous and deepening divide in the country between a vast number of average borrowers and a fairly elite slice of corporations, banks and executives enriched by the mortgage mania." I mean, and, you know, this morning, I saw a story that the CEO of Fanny Mae, Daniel Mudd, has made more than $42 million while the company has been tanking. And that doesn't, that's not the America that I want to remembered.
DEAN BAKER:No, it's really incredible. And even as, you know, things are going down in flames, there's still no interest in holding them accountable. So you have the CEO of Fanny Mae gets over 40 million, CEO of Freddie Mac got 19.6 million in a single year.
Both companies are essentially bankrupt. I mean, there's been this charade, like, oh, it's just bad press, and, you know, shorting their money. You know, they're basically bankrupt. If anyone doubted that, well, just take away the government support and see how long they hold up. You know, they're basically bankrupt companies. And the people who ran them into the ground are still sitting there, collecting millions of dollars. And it's just kind of mind boggling.
BOB HERBERT:What is the point of having government on the side of the rich and powerful in this society? I mean, just off the top of my head. I mean, that seems insane. So, you have, for example, credit cards. People are, I mean, people are milking the equity out of their homes to pay off credit card debt, which is really insane.
But how can it possibly be okay to have credit rates of credit card interest that were usurious, and, you know, a few decades ago, if a loan shark was charging that kind of interest, the guy would have been the guy would have been locked up. But that's okay. The government comes down on the side of the corporations, making it more difficult for ordinary workers to organize. So you can't become part of a union which could represent your interests. And you can just follow this all along the line.
BILL MOYERS:Listen to this. Quote: "Between 2000 and 2006, the last time since figures were available, those among the very top ten percent of all households, on average, increased their income by about two percent, while those in the bottom 90 percent lost more than four percent." I mean, how is it we're allowing this to happen, the stagnation of wages for the majority of people?
DEAN BAKER:Well, again, we just have policies in place that just keep skewing income more and more upwards. So, you know, unions, I think, are a great example, perhaps the best single one we could point to, that, you know, unions are a great institution for ensuring that ordinary workers got their piece of the pie. So, when productivity went up, their wages more or less went up with it. Now, you know, we went you go back a quarter century, and almost 20 percent of the private sector workforce was union. Today, it's about seven percent. I mean, it's just an incredible difference over the-
BILL MOYERS:And there's evidence that union organizing actually brought up non-union wages, too, right?
DEAN BAKER:Absolutely. You know, so you bring up wages for the whole sector, for the obvious reason. You know, if the union workers in the auto individual are getting 20 an hour, well, if you're Honda or whoever, and you don't want a union there, well, you're going to have to pay something close to it, 'cause, you know, you're not going to get away with paying the minimum wage and think you're not going to have a union come in.
BILL MOYERS:I pulled a story off the internet this morning, that companies, big corporations are raising $100 million to put in the campaign this fall. In Walmart, we saw last week instructed its supervisors and managers to urge workers not to vote Democratic this fall. What's going on there?
DEAN BAKER:Well, it's really almost making a charade of the elections. I mean, you know, Bob was talking before about how, you know, it's so difficult to unionize. Because ostensibly, you know, it's supposed to be a neutral process. You know, the workers get to decide. But it's absolutely standard practice now for employers to figure out who's organizing, and they fire them. It's against the law, but the penalties are so minor that, you know, so what? You know, six months, a year, two years down the road, they end up losing. They pay, you know, a very small fine. They've prevented their place from being unionized.
Now they're applying the same strategy, it seems, to elections more generally. We're going to have Walmart, that has, you know, over a million employees. And they're going to be scaring them, or doing their best, that, you know, if Barack Obama and the Democrats win, you're going to lose your job.
BOB HERBERT:By definition, if you can get yourself together, organize yourself, raise $100 million for whatever kind of effort, you are organized. And then, if the other side is not organized, you're wealthy and organized. The other side is not wealthy, and not organized. Who has the advantage here? I mean-
BILL MOYERS:Every time guys like you talk like this, though "The Wall Street Journal" says you're fighting a class war.
BOB HERBERT:The class war is over, and we lost. There was a class war. We've been defeated.
BILL MOYERS:What do you mean?
BOB HERBERT:We've had, instead of a redistribution of the wealth from the top down, we've had the opposite. We've redistributed the wealth from the bottom up. The top sliver of the population has done fabulously well over the past three decades or so. And the rest have either stagnated or fallen behind.
BILL MOYERS:You wrote a couple of weeks ago, Bob Herbert, that the biggest failings of the two parties right now is their unwillingness or inability to be forthright in telling the public about this crisis. What did you mean by "this crisis"?
BOB HERBERT:I think that the country is really in tough circumstances. The financial sector is in crisis. You have the economy in tough shape, in terms of employment and that sort of thing. You have the housing crisis that's not going to go away for a while. And I think we're really vulnerable in terms of people's standards of living. And I don't think the politicians are telling the truth about this. And I especially I don't think the Democratic Party has been telling us the truth. They are the ones that generally should be on the side of working people.
DEAN BAKER:Yeah I agree with that completely. We actually did an analysis recently, looking at the impact on people's wealth. We're looking at the late baby boomers, myself included, 45 to 54, you know. So this group of people that are close to retirement, but they still have a few years left in the work force.
And we looked at the median wealth of this group. And this is, you know, obviously middle income people, by definition. The median wealth of this group is less than $100,000. Now, the vast majority do not have a defined benefit pension. So these are people that are approaching retirement, and they're overwhelming majority of them are going to have almost nothing other than the Social Security and Medicare to support them in their retirement years.
And, you know, again, this is, you know, this is middle income people that you would expect we're counting equity in their home, by the way. So they have most of their home is not paid off. So you have people that are approaching retirement. They still have a big mortgage left in their house, and basically, nothing else.
BILL MOYERS:So how is it that some people still worship at the altar of trickle down economics?
DEAN BAKER:I think they're not given the story. I mean, again, it gets back to the media. You know, this is you know, if the media were talking about this the way I think they should, and perhaps Bob would agree with me on this, this should be like, you know, front page every day. You know, here are the policies. You know, we have, well, I'll beat up on the Republicans here. You know, they're saying, you know, we're going to have more trickle down economics-
BILL MOYERS:He would beat up on the Democrats. He's been very critical about-
DEAN BAKER:But I mean, you know, Senator McCain is going to be running for, is running for President. And he's saying, "Well, we have to have tax cuts." You know, oriented primary towards upper income people. Now, that should be like, well, we're just going to beat our heads against the wall a few more times. 'Cause we've done this. You know, how many more times do you have to try an experiment and see it fail, and you could still get it taken seriously? I mean, they'll make fun of, you know, Senator Obama. They'll go talk about his minister. And we're probably going to be hearing about that all through the fall. And here, you have John McCain with an economic program that we know does not work in terms of providing benefits and providing jobs for typical people. But he's going to be treated seriously with it.
BILL MOYERS:You had the Republicans this week talking about drilling offshore and more drilling on our continent, that gas prices will come down.
DEAN BAKER:Well, this is again I'll beat up on the media for this. 'Cause there's really no ambiguity. I mean, if you've got any expert out here, we know, well, at least, let me put it this way: We have no reason to believe there's a significant amount of oil there. I mean, maybe Saudi Arabia's hidden under Florida somewhere that we didn't know about. But in terms of, you know, the evidence we have, there's very little oil there. I mean, I wrote a column making fun of that story. I said, "John McCain wants to drill in your toilet." I mean, maybe, I don't know he does. But-
BILL MOYERS:Even Obama this week said he's willing to negotiate on the issue of-
DEAN BAKER:He gets intimidated by it.
BOB HERBERT:Because McCain is getting traction in the polls on this issue. I talked to Senator John Kerry just a couple of days ago on this issue. And he said, "This is the most fraudulent thing that you can imagine. It's just absurd. You're not even in the best case scenario, you're not even gonna get any oil from these offshore operations for another ten years."
And even maximum what's even maximum, like 200 and some thousand gallons a day.
DEAN BAKER:It's only two-tenths of one percent of world supply.
BOB HERBERT:In 2030, I think-
DEAN BAKER:Yeah, yeah. So you're talking about that by-
BOB HERBERT:-is when it maxes out.
DEAN BAKER:Yeah. That might drop the price of gas at that point, by three cents a gallon, you know.
BOB HERBERT:In 20-
BILL MOYERS:So let me show you a video we have here, of the former Speaker of the House, Newt Gingrich, who was on television this week, saying, "Drill now, drill here." Watch this.
BILL KILMEADE:Let's say we start drilling in two months of the coast of Florida right at the Continental Shelf. When can we get the oil when will it effect the price of gas and oil?
NEWT GINGRICH:I tell you what I'm going to get you a guest, if you'll take him, whose an intern at the American Enterprise Institute and a junior at Princeton who has found an economics paper that argues that the price of oil will start to drop almost immediately on the expectation of future supply. Everybody who is a professional economist knows if there an expectation that supply is going to go up prices start to come down. And they start to come down immediately because speculators start to sell out of the market because they suddenly realize that they're going to lose their position.
GRETCHEN CARLSON SOT:Yeah, but I find it interesting that more economists are not on the record saying that.
BILL MOYERS:Newt Gingrich says that all economists support more drilling. You're an economist, Dean Baker. Will more oil drilling bring prices down immediately, as Gingrich says?
DEAN BAKER:Well, again, the point here is that there's very little oil at stake. And it's not gonna be coming online for ten years, the first drops. And we don't get, you know, our full production, which again, is very, very modest for about 20 years. So the impact will be basically zilch.
The Republicans are selling garbage. I mean, you know, you can drill wherever you want. You can wreck the environment that way, but you're not going to lower the price of gas. But yet, you've got a majority of people, according to the polls, that they're going, "Yes, yes, yes. Let's drill, 'cause we want cheap gas."
BILL MOYERS:Do you see anything coming from Obama that deals with what we've been discussing that strikes you as serious?
BOB HERBERT:Well, you know, it's easy to underestimate Barack Obama. And I've underestimated him for a while. He put together a brilliant primary strategy. But, you know, I frankly wish he was taking a more populist tack on the economy, talking much more about jobs, talking much more about how recent policies that some of them are not so recent any more, have really harmed the interests, the economic interests of the middle class, and working people. And sort of hammered that home, so that you would get a response to guys like Gingrich coming on television and talking nonsense, and that sort of thing. But that, so far, has not been Obama's way. So I don't know whether we're going to see that or not.
BILL MOYERS: I have a story on my desk now, a study done, showing that while Obama has been very successful, as he himself boasts, of raising money from small contributors on the internet, he also has his Goliaths.
BILL MOYERS:He has huge, large numbers of people who have given him multi millions of dollars.
DEAN BAKER:And that's, I think, a very big issue. Because right now, I mean, what's front and center, at least for me, is, you know, look, we have we're going into this recession because of Wall Street, you know, just incredible corruption. I mean, you know, the amount – the "Times" had an article about a month or so back, where they just documented that more than half of the profits of the Wall Street banks over the years '04 to '07 you know, just golden years for Wall Street have already been lost in write downs. I mean, which is just ungodly incompetence and/or corruption. Take your pick.
BILL MOYERS:What does that mean for ordinary people?
DEAN BAKER:Well, what it means is that they were paying money in all sorts of fees, you know, the sub-prime or up they were paying all this money. And it, you know, it evaporated because, you know, they had their loans lost. Now, if you went to the pockets of the executives, you know, you have people who are running the Wall Street firms who made out like bandits, made tens of millions, sometimes hundreds of millions.
But it did nothing for the economy. And a lot of those people are working in Obama's campaign. They're the big funders. You know, so that raises serious issues, because again, if I were what I'd like to see Barack Obama doing is going, "We've got a real problem that's going on Wall Street." You know, we should be reining them in.
BILL MOYERS:But he's not?
DEAN BAKER:He's not.
BOB HERBERT:No. And, you know and this idea that the Republicans are trying to portray Obama as sort of this raving liberal or raving leftist, and the sort of thing. He's never been that. He's always been a moderate in terms of his policies, a moderate Democrat. It remains to be seen whether sort of this posture he's pursuing is in fact, a winning strategy in a national election when the country's going through economic hard times. I don't know whether it is or not.
BILL MOYERS:No matter who wins this election, the next administration will inherit the mess. You know, ten trillion dollars in debt, two in these wars, stagnating paychecks, growing inequality. What's the first thing each of you would like to see the next administration do, whether it's McCain or Obama?
DEAN BAKER:Well, I'm going to give you two. I do want to see us get out of Iraq. You have to put that front and center. But the other thing I'd really love to see them do is health care. We have to fix our health care system, because it's just, it's outrageous. People don't get coverage. But we also can't afford it. So even if people that are getting coverage, they're seeing high bills. The employers, I mean, not employers here. But they do have to pass on those costs. So if they're seeing higher insurance premiums year by year, that means less money for paychecks. We have to fix our health care system. It's broken.
BOB HERBERT:I agree on the war. I think you've got to get out of Iraq. I don't think anything substantive is going to go forward in this country, until we start to bring most of the troops out of Iraq. I'm not sure how much of a or how big a health care bill a Democrat could get passed. I think jobs, employment, is a real issue I would focus on. And I think the infrastructure, where we need to redevelop it, repair it-
BILL MOYERS:Bridges, highways, roads.
BOB HERBERT:-is a source of good jobs. And I would really focus on that. And I don't know if you can get a major health care bill early, and also a major effort on infrastructure at the same time.
BILL MOYERS:Bob Herbert, Dean Baker, let's continue this conversation in the fall, and see what's going on after the two conventions.
BILL MOYERS:Thank you for being with me today.