October 3, 2008
BILL MOYERS:On Monday, the people rose up and Congress backed down, sending the bailout to defeat. But then the lobbyists rushed in with a brinks truck of bribes, and this afternoon Secretary of the Treasury Henry Paulson got $700 billion dollars to save the system that his crowd on Wall Street had exploited to enrich themselves while plunging the country to the edge of catastrophe.
The bailout offers almost no help for homeowners, or equity for taxpayers in banks that are being thrown a lifeline...it turns our Secretary of the Treasury into Caesar Augustus and plunders democracy with tax breaks for Hollywood studios, Samoan sweat shops, Alaskan fishermen, rum merchants, makers of toy arrows and giveaways to big oil. All this on the very day the government reports that another 160,000 people lost their jobs last month that's the most in five and a half years.
No wonder that Congress today resembled Monty Python's ministry of silly walks one palm open to the lobbyists, the other holding their nose against the stinking odor of a bill everyone said they didn't want while rushing for the airport to go home and tell the voters how important it is for them to be re-elected so they can come back and clean up the mess they just made.
Here for a post mortem is Emma Coleman Jordan. She teaches commercial law and economic justice at Georgetown University. She's a former White House Fellow and assistant to the Attorney General, and has served as president of both The Association of American Law Schools and the Society of American Law Teachers. One of her latest books is "Economic Justice: Race, Gender, Identity and Economics." She's now editing a book to be published early next year, called "The Short End of the Stick."
Ms. Jordan, welcome to the Journal.
EMMA COLEMAN JORDAN:
It's my pleasure, Bill.
With the bailout today, who's getting the short end of the stick?
EMMA COLEMAN JORDAN:The middle class is getting the short end of the stick. And those who are in that bottom quintile, the bottom 20 percent, who are not getting basic needs met, who are struggling to get by every day.
You know, when I hear some of the politicians say that the fundamentals are good because American workers have been productive, that's true. They have been quite productive. But they have not been rewarded for that productivity with growing wages. The wages are flat or stagnant.
They haven't been rewarded with the benefits of access to college, access to secure retirements and access to home equity as a cushion against economic misfortune. So you know, I do think that the short end of the stick is being handed to the middle class and below.
The top one percent is doing quite fine, thank you. And that misallocation is a large part of what you're seeing in the rage. People are outraged, in the country about the bailout because they see it as giving away opportunity. What could we do with $700 billion? A healthcare plan where every child in America could have healthcare? What are we doing?
We've got a gun at our heads, and we understand that that gun means that if you don't give the $700 billion, bad things will happen. But no one has been able to tell us that if we do give the $700 billion, good things will definitely follow. We haven't been given that assurance.
BILL MOYERS:I want to play you an excerpt from a speech that Bernie Sanders made on the floor of the Senate the other day and see what you think about what he says is not in this bill. Take a look at this.
BERNIE SANDERS:This bill does not effectively address the issue of what the taxpayers of our country will actually own after they invest hundreds of billions of dollars in toxic assets. This bill does not effectively address the issue of oversight. This bill does not effectively deal with the issue of foreclosures. This bill does not effectively deal with the issue of executive compensation and golden parachutes. Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits.BILL MOYERS:What is not in the bill that you wish were there?
EMMA COLEMAN JORDAN:I wish there was more about foreclosures and mandatory workouts for people who are near foreclosure but not yet there.
BILL MOYERS:And there are a lot of those people.
EMMA COLEMAN JORDAN:Absolutely.
BILL MOYERS:People still hang- barely hanging on...
EMMA COLEMAN JORDAN:...hanging on by a thread. And that group is going to grow because we've got a recession coming. And so people who are losing their jobs, 159,000 in the last month...
EMMA COLEMAN JORDAN:...who are losing their jobs, are not going to be able to pay even a fixed-rate mortgage. So any of the people who have lost their jobs and also have these toxic mortgages, the ones with the option only, which is pay what you feel like, whenever you feel like. So there's this negative amortization at the end where there's this big balloon that they've got to face, even people who have traditional fixed-rate mortgages are going to be pushed to the edge of foreclosure. So I wish there was more. It does turn out in the 456-page version...
BILL MOYERS:The one passed today.
EMMA COLEMAN JORDAN:..that was passed today, there is one line that permits the Treasury Secretary to provide guarantees, and to provide those guarantees for the purpose of giving incentives to lenders to do workouts of foreclosure, near-foreclosure cases. So that's that one line if it is properly administered, can be a way in which foreclosures can be addressed.
BILL MOYERS:While people were talking about sub prime loans, you were talking about sub-slime loans. How come?
EMMA COLEMAN JORDAN:Well because I think there clearly is a racial disparity in the way that these high-cost loans were distributed. THE NEW YORK TIMES did a wonderful study last year showing the racial disparity in the distribution of these loans. And it appears that even qualified minority borrowers in certain communities were given bad loans even when their credit rating was adequate to provide them the opportunity to get a standard fixed-rate loan at a better interest rate. So that is what I meant by sub-slime loans.
The whole package of tactics that brokers used to get people to sign up for things that they couldn't afford. It's, dangle the American dream and people overreach. You know, we're overworked and we're overspent. And the debt mentality of the American psyche has really gotten out of control. And people who are very poor are not exempt from this contagion that we want more than we have.
It's expressed there in our deficit, our current accounts deficit. It's expressed in a number of different ways, our budgetary deficits, the trade deficits, the current accounts deficits that we have. All of these are ways of saying that we are not producing as much as we are consuming.
BILL MOYERS:There've been a lot of voices on cable channels recently blaming this bubble, this crisis, the cause of all of this catastrophe we're in right now, on poor people who took out mortgages that they couldn't afford to buy home they wanted. They shouldn't have. Watch these clippings and tell me what you think about them.
LAURA INGRAHAM:1995 when Bill Clinton decided to tell, you know, Robert Rubin to rewrite the rules that govern the Community Reinvestment Act and push all these institutions to lend to minority communities, many very risky loans, that was a noble idea, perhaps, but that certainly wasn't following free-market principles.
NEIL CAVUTO:I don`t remember a clarion call that said, Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.
LARRY KUDLOW:It's time for the Congress, Republicans and Democrats, to stop encouraging, exhorting, and forcing banks to make low income loans with no documentation. Stop that. The community reinvestment act which was passed in the mid nineties, which was extended in the early 2000s, literally pushed these lenders to make low income loans.
BILL MOYERS:Lending to minorities and risky people. Do you see this, are they seeing this as issues of race and class?
EMMA COLEMAN JORDAN:Absolutely. And it's a cynical manipulation. It's reprehensible. And, in the worse tradition of Lee Atwater, and the-
BILL MOYERS:Lee Atwater.
EMMA COLEMAN JORDAN:-Willie Horton ad, to use race as a wedge issue to make people who pay their mortgages believe that the people who are getting the benefit of the 700 billion dollars, that we're being asked to pay, are poor, minority people who caused the crisis.
This is unconscionable. This problem is not a problem that was caused by the Community Reinvestment Act. The data is very clear that the Community Reinvestment Act loans were being offered in a way to people that were much more responsible and had none of the characteristics of default that are being attributed in this discussion. And what this does is to say, this problem is a problem that was caused by black people.
And it means that it gives an opportunity to bring up that old wedge. But I think the people in the country are smarter today. I just don't think it's going to fly. I think that people understand that the enemy is not a person who got a home loan and was tricked into getting that loan by a fast-talking broker who originated the loan but that the problem was the securitization process, the high leveraging that Wall Street was doing, the lack of regulation.
Front page of THE NEW YORK TIMES today has a bone-chilling story. And the bone-chilling story is about how, in a 55-minute meeting, one of the major rules that constrained Wall Street, and the requirement that Wall Street investment firms have capital adequate to protect against losses from bad loans or any other activity they were engaged in, how that rule was willy-nilly taken away and thrown aside, unanimous decision by the members of the SEC-
BILL MOYERS:Securities and Exchange Commission, right.
EMMA COLEMAN JORDAN:-permission.
BILL MOYERS:I read that story. It's-
EMMA COLEMAN JORDAN:It's bone chilling.
BILL MOYERS:I mean, it was part of the process of taking, you know, of putting the watchdog to sleep, right?
EMMA COLEMAN JORDAN:Well, there's two parts of the story. One part is they decided to take away the rule. And the rule was that they had to have a certain amount have capital. That rule was waived. The second part, which is even more important, frankly, was that in exchange for taking away this capital, the SEC was supposed to monitor these banks, investment banks, to see what their activities were. The statute was not clear about whether the SEC had that authority. And it turned out that what happened was, all of the monitoring was delegated to the industry itself. And so the computer programs of the securities firms themselves were used to monitor them. I mean, it was the most incredible case of foxes guarding-
BILL MOYERS:Starting of what?
EMMA COLEMAN JORDAN:-the chicken coop that I've ever seen.
BILL MOYERS:How do you explain it?
EMMA COLEMAN JORDAN:Well-
BILL MOYERS:Was it ideological? Was it the belief that markets, you know, will regulate themselves? Or was it out-and-out inside dealing, rigging the rules to favor yourself?
EMMA COLEMAN JORDAN:I work in the world of ideas. And I'll tell you, I think ideas matter. And the core idea that drove this process was that government is bad. It's a problem. The best solution to any problem can be found not in government but in the private sector. Secondly, that markets are rational, that markets will determine where value lies and make choices using the Adam Smith metaphor of the invisible hand. And that these allocations are neutral and fair and to be preferred, more importantly, to any government intervention or solution. Now, the problem is market solutions are preferred on the upside. But when the downside emerges and we're in a crisis because the market has not self-corrected, allowing investment banks to monitor their own risk for lower capital requirements turns out to be a problem because they're not monitoring themselves surprise, there's gambling in this joint that that has turned out now to be a source of the major problems that we're experiencing.
BILL MOYERS:Yeah, you know, if I had time, I would show you a speech that I just looked, an excerpt from a speech that President Clinton made towards the end of his administration praising deregulation and saying, "We, Democratic Party, has moved into the forefront now of letting markets work, of supporting, quote, 'free trade.'" So at times both parties joined in a conspiracy against the public, right?
EMMA COLEMAN JORDAN:Well, it's called the Washington consensus.
EMMA COLEMAN JORDAN:And the Washington consensus is that, you know, the effort to take government regulation out of the process of controlling risk and intervening in very focused and definite ways into certain sectors of the economy that were ostensibly private. It's a bad thing.
And the closer you can get to having markets where competition is the basis for allocating winners and losers the better you are. And that ideology was a bipartisan effort, shared effort. And there's no way to avoid understanding that that was something that both Democrats and Republicans shared as an ideology. And the question is to what degree?
And there I do think there is a clear difference. The degree of faith in markets where we're in the middle of an asset bubble, where housing prices are going up, going up, going up, everyone understands that at some point, these prices are not sustainable. But the chairman of the Federal Reserve is cutting interest rates, cutting interest rates, cutting interest rates to keep the party going.
And, at the same time, refusing to use the statutory authority that he had to flush out the fraudulent abusive practices that were being foisted on to homeowners, both middle-class homeowners and poor homeowners with these option-only payments, teaser rates, no exit fees or high exit fees, brokers' premiums, I mean, a whole litany of abusive practices. So he did not use the authority. So what you've got is the specter of the world's leading economists in charge of the Federal Reserve seeing these prices going up and knowing at some point it's irrational exuberance.
BILL MOYERS:I think I've heard that, right?
EMMA COLEMAN JORDAN:Oh, yeah. And that means that what goes up is going to come down.
BILL MOYERS:Given what you just said, what does it say that so many politicians today were willing to give so much money with so little scrutiny to the former head of a major Wall Street firm, Goldman Sachs, to spend on the very people who turned Wall Street, as you just described it, into a crap shoot? Why?
EMMA COLEMAN JORDAN:Well, because of coercion. And let me just tell you about it. It's a political and economic coercive situation. Everyone says hold your nose, vote for it. It's your money or your life. And that's what the country is experiencing right now. We are in a crisis. And it's a crisis that was made by the very people who are now asking for help and demanding that taxpayer dollars be directed to rescue and solve these problems.
BILL MOYERS:An SOS from the people who plug, put the hole in the ship in the first place.
EMMA COLEMAN JORDAN:Yeah, I under-
BILL MOYERS:Mainly who did it? Who?
EMMA COLEMAN JORDAN:Well, Secretary Paulson is certainly not exempt but the leaders of Wall Street. Now, let me just mention a couple of things. There is going to be some unintended consequences of the current period of transition. Let me tell you what those are. One of the unintended consequences is that in order to shore up confidence of the average person like me and the public who's got money in a savings account at a bank, we've increased the deposit insurance limit to $250,000 from $100,000. That's good. It's good for confidence. People will leave their money there.
But there is risk in that. And the risk is that we're not going to be paying attention to what the banks do with the money. And so we'll get sloppy and lazy about monitoring what banks are doing with the money. I've seen this movie before. It's called the S&L crisis. It was the same problem with-
BILL MOYERS:Savings and loan 1989-late '80s.
EMMA COLEMAN JORDAN:Absolutely. That when the savings and loan crisis came about, it was shortly after the period when the FDIC limit was raised from $40,000 to $100,000. And people got comfortable with that. And they left their money. They didn't worry about it because $100,000 was enough to cover it.
And so we developed, as a result of this, something called zombies that is, banks that were technically insolvent, but they were using the bait of higher and higher, unsustainably high interest rates to keep attracting deposits of the unknowing and unwary and broker deposits, that is big chunks of money coming from various sources, to keep the bank looking solvent. So that's one unintended consequence, that you're going to get this problem that depositors are-
EMMA COLEMAN JORDAN:-not going to monitor.
BILL MOYERS:Before I go home and go to bed and pull the cover up over my head, what's the second one?
EMMA COLEMAN JORDAN:Yeah, the second problem is there's another reorganization that is taking place. If you notice that Bank of America acquired Countrywide, which was one of the most notorious sub-prime lenders and acquired them with the assistance of various measures that were taken by the Federal Reserve to make that a feasible transaction. And so we're getting banks growing larger and larger.
What we've got is a second wave of institutions, JP Morgan Chase taking WaMu, I guess it is, new huge institutions that, in the next crisis, will certainly be too big to fail. They'll be bigger than the ones that are failing now. And so the risk that we're encountering we're incurring now is a risk that these even bigger institutions that are being created in this emergency crisis driven reorganization of the entire industry that those are going to be at our door the next time.
BILL MOYERS:And then what do we do? Because that whole idea that the government was there not only to protect the individual who fell through the cracks but to prevent the markets from fraud, that idea has really suffered over the last generation.
EMMA COLEMAN JORDAN:Yes, it has. But I am hopeful. I am an optimist. I really am. I see in this crisis danger and opportunity. And the opportunity is that I believe that in this crisis we are rethinking some fundamental premises about the role of government in our lives. And a part of the anger and the rage that people have directed to their representatives in this discussion of the rescue plan or the bailout plan, depending on how you want to characterize it-
BILL MOYERS:Frame it, I think, is the language.
EMMA COLEMAN JORDAN:Frame it.
EMMA COLEMAN JORDAN:Frame it or spin it. That what we are going to experience in this process is a real wakening of American values and respect and commitment for government. Yes, the market creates innovation. The market produces so many wonderful things. They're a part of this fabulous quality of life that we have in the United States. And we love it. However, there's a dark side of the market. Dark side of exclusion, the dark side of excess, the dark side of greed and manipulation. And somebody's got to be the cop on the beat to step in when these excesses materialize.
You know, to have these things taking place without any government oversight is a problem. And it'll take leadership to articulate a vision, to articulate a set of values that will allow us to say excessive CEO compensation is wrong. Giving the secretary the power to dole out $700 billion without any serious scrutiny is wrong. If the taxpayers are going to be given the opportunity or the expectation to bail the situation out, we ought to be treated as investors so that if these assets, the securities in this toxic pile, recover, taxpayers get something back in return.
BILL MOYERS:Today, however, did capitalism buy off democracy in this vote in Congress?
EMMA COLEMAN JORDAN:I don't think the story's over.
BILL MOYERS:Emma Coleman Jordan, thank you very much for being here. I've enjoyed this conversation.
EMMA COLEMAN JORDAN:It's been my pleasure, for sure.
BERNIE SANDERS:This bill is still not good enough.
HARRY REID: We've got to get this done.
JIM DEMINT:I just do not believe that this bill gets the job done.
MITCH MCCONNELL: This is the only way to get the right kind of solution for the American people.
JEFF SESSIONS:Now, I'm not going to vote for the thing.
BARACK OBAMA:We have a responsibility to solve this crisis because it effects the financial well being of every American.
BILL MOYERS:I want to take a moment to remind you that tomorrow, Saturday, October 4th, is a very important day. Here's why.
This was the scene in Florida eight years ago this November Republican operatives sent down from Washington jammed into local election offices angrily disputing the recount of ballots in the incredibly tight race between George W. Bush and Al Gore. This man was heard shouting, "My name is John Bolton and I'm here to stop the count." Bush would later appoint him Ambassador to the United Nations.
We saw in Florida what an unholy mess our voting process had become: A system where partisan officials ran the election, dumped eligible voters off the rolls, and then posed as impartial referees when the fight broke out.
Plenty has changed since 2000, and some for the better. But the American way of voting is still erratic, unwieldy and unreliable; vulnerable to both technological hang-ups and partisan dirty tricks.
Just this week, residents of two black neighborhoods in Philadelphia found scam flyers threatening that anyone with outstanding parking tickets or warrants may be arrested at the polls on election day.
And in Montana, Republican leaders challenged the eligibility of thousands of voters voters who just happen to live in Democratic strongholds.
The problems aren't confined to partisan players. Just two days ago, this report from the Brennan Center at New York University documented how state officials often with the best of intentions purge huge numbers of perfectly legal voters from the rolls.
Hundreds of thousands of legal voters may have been dumped in recent years, many without ever being notified. The report describes a "process that is shrouded in secrecy, prone to error, and vulnerable to manipulation." Hardly reassuring words if you want democracy to work.
This is why Saturday, October 4th is so important. It's the voter registration deadline for five states. Monday the 6th is the deadline for nineteen other states. Many more come later in the week. That means that starting tomorrow, many of you have only one more chance to register to vote, or just as important, to confirm that you're still registered.
If you go to our website at pbs.org, you can find your state's election rules and a guide for how to protect your vote. Learn what the ballot in your area looks like, confirm the address of your polling place, and figure out what identification you need to get in the door. Make sure your vote counts.
Finally, I'd like to call your attention to a public broadcasting news program debuting next week. WORLDFOCUS is a nightly, half-hour newscast dedicated to giving you a global perspective. It's hosted by veteran correspondent Martin Savidge:
MARTIN SAVIDGE:We'll tell you what happened around the world and what it all means to you...
BILL MOYERS:Next week's daily broadcasts will feature a series of signature reports on the high price of food, shot in South America, Africa, India and Eastern Europe. As the saying goes, check your local listings to find WORLDFOCUS where you live.
That's it for the Journal. I'm Bill Moyers. See you next time.