Tavis: Michael Hirsh is the former national economics correspondent at Newsweek who now serves as chief correspondent for the National Journal Group. His new book is called Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street. He joins us tonight from Washington. Michael, good to have you on the program, sir.
Michael Hirsh: Thanks for having me, Tavis.
Tavis: Let me start by asking who these wise men are that you’re referring to.
Hirsh: Well, I was inspired to write this book in the fall of 2008 when, along with the markets, I watched some of the greatest reputations of our time crash to the earth and, of course, chief among them were men like Alan Greenspan, the Federal Reserve chairman; Robert Rubin, the former Treasury Secretary, and others who we had kind of lionized in the 1990’s as masters of the game, masters of Wall Street and globalized finance. Now all of a sudden, it all became a cropper and suddenly what once looked good didn’t look so good. So these were the – wise men, obviously, is used tongue in cheek.
Tavis: Yeah, I get that. How did they go from being, though, to your term – and you’re right about this. They were the masters of the economy. How did they go from being masters of the economy, masters of predicting the future, to being so unwise so quickly, or maybe not so quickly?
Hirsh: Well, it seemed quick, but in actuality – and that’s the story that I try to tell in my book. It really was over a period of a few decades going back to the Reagan revolution and proceeding through the Clinton administration when they got a couple of really big things wrong.
They were good at crises without realizing that some of these crises, including some that happened in the 1990’s like the peso crisis or the Asian financial crises were precursors of the financial crisis we suffered in 2008. They involved just deregulation of the financial markets of Wall Street to the point where absolutely no one was watching.
By the time these trillions of dollars in over-the-counter derivatives and other kinds of trades went bad, you know, there was literally no longer any regulation or oversight of them. You know, we suddenly realized that all of this wonderful deregulation wasn’t working out quite as it was said to.
Tavis: So in your book, you do a pretty good job of tracking this back, as you mention now, Michael, to deregulation during the Clinton years, which raises the obvious and, quite frankly, the old question, but I want to get your take on it, which is why then President Obama when he came to the White House would bring in some of the same people who were there during the Clinton deregulation years?
Hirsh: You know, it’s a very good question. Obama, obviously, is a very smart guy. I think, as one of my sources said to me, “He didn’t run for president to fix derivatives.” This was not necessarily his subject. It was the crisis that landed in his lap when he was, you know, elected, obviously saying and doing other things, against the war in Iraq, dealing with the healthcare issue, nuclear disarmament.
I think that he was just slow to get up to speed on this. He saw people like Larry Summers, his chief economic advisor, and Tim Geithner, the Treasury Secretary, as crisis managers, you know, guys that could come in and fix the problem without fully appreciating, I think, that they were in some ways the authors partially of this crisis.
Tavis: So now that the president gets a chance to reshape his economic team – we had on this program last night, Robert Reich. We got a chance to talk a bit about this. I want to get your take on it – of course, former Labor Secretary.
Now that the president gets a chance to reshape his economic team, Summers has gone back to Harvard, Christina Romer already back here in California, Peter Orszag now writing for the New York Times. So he gets a chance to reshape his team, how should he reshape this economic team, given what we’re up against right now?
Hirsh: Well, frankly, I would hope that the president does the opposite of some of the advice he’s getting right now, which one hears to hire a CEO to come in and run his National Economic Council and take Larry Summers’ place, which I think, you know, is the last thing he needs. There is some perception that he’s been tough on business. Actually, I think he’s been relatively easy on Wall Street.
My view would be that I think he should go ahead and do what I thought he should have done a couple years ago and hire a guy like Paul Volcker, the former Federal Reserve chairman who was really a kind of legend in his own time and was quite prescient about the problems with deregulation of the financial sector going back to the late 1980’s. If not Volcker, then other progressive voices, others who saw the problems before they developed.
None of these people were hired, you know, by this administration and I think it’s not too late for President Obama to think about hiring them.
Tavis: How much of the mess that we’re in right now and, to your earlier point, Obama not getting up to speed fast enough has to do with, frankly, the White House’s deference to Wall Street?
Hirsh: It has a huge amount to do with that. Going back to Ronald Reagan, you know, five presidents have found it politically expedient and economically wise – quote-unquote – to defer to Wall Street.
One of my favorite characters in my story is actually Paul O’Neill who, you may remember, was George W. Bush’s first Treasury Secretary, left town, left Washington under a cloud. People sort of made fun of him because he wasn’t Robert Rubin. But if you look at a lot of things he said, he was extremely wary of Wall Street and Wall Street’s dominance of the economy, which is a problem that continues. It continues to have the whip hand over the way we look at the economy, the way CEOs see their compensation packages, their growth plans, employee welfare.
It’s all dictated by Wall Street and, frankly, after two years of this crisis with this giant new law that was passed last summer, we haven’t seen very much restructuring.
Tavis: Back to your book’s title, early in this conversation, you suggested that the phrase “wise men” was a bit tongue in cheek. I ask now whether or not the notion that our future has in fact been turned over to Wall Street, whether that’s tongue in cheek or whether that’s real.
Hirsh: Sadly, I think it’s still real. Look, it’s not like there aren’t good things and good people involved in this picture. I mean, one of the progressive voices that the president has tried to bring in now is Elizabeth Warren, the Harvard law professor who is gonna set up this Consumer Financial Protection Bureau, and both the bureau and the presence of Professor Warren are good things.
Someone described her to me, “You know, she’s one of the few people in the Obama administration who doesn’t have Bob Rubin on her speed dial,” which means she’s not part of this team that deregulated the financial markets in the 1990’s and 2000.
Tavis: She doesn’t have Bob Rubin on her speed dial, perhaps, Michael Hirsh, but the president, the White House did, ultimately, as you know, make a decision to structure this deal for her, her being an advisor to the president, setting up this commission, setting up this bureau.
You know the politics. They did that because they did not want, for whatever reason, didn’t think it was wise to take this fight to the Hill to get her confirmed, so let’s dig into that. What does it say, then, about what they think is important if you’re not gonna fight for the person to run the agency, one, who recommended it?
And number two, if this financial reform has any teeth in it at all – and I could debate you on that – but if it has any teeth at all, the teeth rests with this agency and that’s the one thing that nobody in the White House thought they could go to Capitol Hill and fight for. How am I supposed to read all this?
Hirsh: No, I agree. I mean, your point is well taken. I agree with you that this Financial Protection Bureau is certainly one of the biggest things in this bill. The deference to the Republicans and centrist Democrats on the Hill that Obama perceives are going to oppose Elizabeth Warren. I think that happened a little too quickly.
It would have been nice to see him fight for a few of these things, but this goes back to a larger point, Tavis. I think that President Obama just didn’t fully appreciate how deep and systemic this crisis really was. You know, something like this doesn’t just happen in a few years because of a sub prime mortgage bubble.
Something this huge that infected every major Wall Street firm to the point where none of their CEOs even knew it was being traded under their own noses any long, that nearly brought down the global economy, is much more systemic. It goes back decades and, frankly, the president needed to spend a lot more time focused on this. He was always off doing something else. Healthcare is a very important issue, but did he really have to do it his first year when he had this huge, you know, economic crisis?
People said, look, President Obama is gonna turn out to be the next FDR, Franklin Delano Roosevelt, and we’re gonna get a New Deal. Well, we didn’t. You know, we ended up not getting that and ended up not getting the scourge of Wall Street and the banking industries and there’s a lot of outrage out there because of it.
So getting back to your point, yeah, the deference to Capitol Hill, the way he kind of sneaked Elizabeth Warren in the side door by saying, okay, she’s gonna be my advisor, but I’m not gonna fight to get her confirmed, was more evidence that Obama continues to try to wind a middle path that’s satisfying no one, frankly.
Tavis: I just got 45 seconds to go here, Michael. Let me ask you very quickly what the everyday American is supposed to think when they hear the wise men now tell them that the recession is over?
Hirsh: Obviously, very few people feel like it’s over. Even most economists agree that, you know, what we’re in now is kind of a growth recession in that the economy is growing, but too slowly to replace those jobs. You know, we’re at 1.6 or less than 2 percent growth. We need to get up to about 3.5 percent to start to generate new jobs. You’ve got 9.6 percent unemployment. You know, a lot of things that are still going wrong.
Again, I mean, this goes back to the same point. The stimulus was not large enough. The Obama administration underestimated, frankly, what would be needed. They didn’t use all their political capital to fight for a large stimulus and allowed themselves to get diverted to other issues. I think that the president at this point, you know, midway through his term has to really focus 100 percent on this.
Tavis: Michael Hirsh is the author of the new book, Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street. Michael, good to have you on the program. Thanks for the text.
Hirsh: Thank you very much, Tavis.
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