Tavis: Phil Angelides is the chair of the Financial Crisis Inquiry Commission, which recently released its report on what caused the economic meltdown in 2008 and ways to avoid a future crisis. This weekend, the book will make its debut on “The New York Times” best-seller list. He joins us tonight from Sacramento. Mr. Chairman, good to have you back on this program, sir.
Phil Angelides: It’s great to be with you, as always, Tavis.
Tavis: Let me start with that first point about the “Times” list. What do you make of the fact that after all this work there apparently is enough interest in the text for it to be one of the 10 best-selling books in the country right now?
Angelides: Well, two things. First of all, I think there’s a lot of anger, a lot of confusion, a lot of Americans wanting to know how it is that 26 million people are out of work, can’t find full-time work. They want to know why four million families lost their homes to foreclosure, and that number may go as high as 13 million.
They want to know, and in this book – and I will say it’s been out now for two weeks – in this book, no one has challenged any of the facts. We tell in great detail the tragedy of this financial crisis. So I think there’s a real appetite in this country to know, understand, so we can avoid this kind of calamity again.
Tavis: Is the text relevant these days?
Angelides: Oh, it sure is, and look, I think there’s a lot of people on Wall Street and some in Washington who want to paper over what happened two years ago as if it was a bump in the road.
It was an upheaval. It was a financial earthquake. It devastated our economy. For a decade we had built a paper economy built on financial engineering. Instead of creating jobs and wealth for Americans we created trillions of dollars of securities that were packaged, repackaged, sold around the world, and then there was this collapse.
I think it’s very relevant, because we have no easy path to economic recovery and I think it’s important that we understand why this happened. What we found, Tavis, is this was avoidable. There’s a lot of people on Wall Street that said, “This is a perfect storm. This was an ill wind.” Lloyd Blankfein from Goldman said it was like a hurricane.
It was the result of human action, inaction, misjudgments, the power of the financial industry and regulators who, frankly, were asleep at the switch.
Tavis: What role did greed play in this process?
Angelides: Well, greed’s a human emotion. It’s always with us. I think the big failure here was to fail to account for it. Over the last 30 years there was a deregulatory philosophy that assumed that corporations would always act in everyone’s best interests for their self-preservation, and we failed to account for the excesses.
So for example, the Federal Reserve knew in the late 1990s and through the 2000s that there was predatory lending going on, that subprime lending was out of control, that lenders were offering people loans that they could never afford to repay, but they sat on their hands. They didn’t act.
We saw that companies were taking enormous risks, packaging mortgage securities and selling them across the world, and I might add, knowing they were defective, that many of them didn’t even meet the minimal standards that they were supposed to meet, but they were sold across the world.
So yes, greed played a factor, but it was our failure to have the public bulwarks in place to contain the excess.
Tavis: Parenthetically, as you know, President Obama has recently announced that he wants to find a way to wind down Freddie Mac and Fannie Mae. Just curious – what do you make of that?
Angelides: Well, I haven’t had a chance to look at all his recommendations yet because they just came out the other day. Here’s what we did find, though – we found that Freddie Mac and Fannie Mae, like the corporations on Wall Street – because remember, these were publicly traded corporations – they followed Wall Street, they didn’t lead it, into investing in very risky subprime mortgages.
But that was to regain market share, to gain profit, to get big compensation for their executives. I don’t think we can go back to a model of having privatized gains and socialized losses, which is what happened with Freddie Mac, Fannie Mae and, I might add, with a whole set of other companies, like Merrill Lynch and Goldman Sachs and Bank of America and Citigroup, where the American taxpayers backstopped the losses.
So I hope we move to a model where we don’t have all the up side going into the private sector and all the down side ending up with the taxpayers.
Tavis: You mentioned moments ago that the report does, in fact, find that the crisis was avoidable. This report, which I’ve had a chance to go through, also finds that government was ill-equipped to deal with whatever you want to call that period where all of this mess unfolded. Government was ill-equipped to deal with it.
You’ve talked about the fact that it was avoidable. Talk to me now about the fact that government, whatever that period brought our way, was ill-equipped to deal with it at the moment.
Angelides: Well, that’s a very good question, because I think there’s two phases here. First of all, we made a whole set of decisions to deregulate derivatives, to allow a shadow banking system, unregulated, lightly regulated, to become even bigger than our regular banking system.
The Federal Reserve sat on its hands while predatory lending practices went on, and in fact the federal government tried to stop the states from enforcing fair lending laws.
But when the crisis hit in 2007, what was most striking to us as commissioners is that those who should have known the most – the Treasury, Federal Reserve Board of New York, then headed by Tim Geithner, the Federal Reserve, then headed by Ben Bernanke, they didn’t understand. They had not questioned the financial system that had evolved underneath them.
So they thought the crisis would be contained with subprime mortgages. They didn’t realize how far the infection had spread. They didn’t realize the risk. Tavis, it’s only weeks before, a month before Lehman Brothers goes down that the Federal Reserve and the Federal Reserve Board of New York says, “We’d better look at the 900,000 derivatives contracts that Lehman has with other parties to see what will happen if Lehman collapses.
We were flying blind in fighting this crisis because the regulators, the policymakers, had really lost control of the financial system. They didn’t understand what it had become.
Tavis: Don’t want to depress you, especially given all the great work and the time and energy and effort you and your committee put into this, but let me just try this on you for size. If I said to you there are two reasons, Chairman Angelides, why I think, with all the great work you’ve done, it’s not going to be taken seriously – two reasons: One, there were a couple of folk on your committee, Republicans, who put out a dissenting opinion, so one, the entire commission couldn’t agree on the report.
Number two, a divided Congress then should not be expected to take this seriously. If the committee, again, can’t have all of you on the same page, why, then, should a divided Congress take this seriously? I’ll throw in a bonus point – Congressman Issa has already said he wants to investigate the work of your committee.
The point obviously is this – after all this work in putting out this dense, now best-selling text, what does it mean?
Angelides: Well, first of all, let me talk about yes, there were dissenting opinions, but there was a lot of common ground. For example, nine out of 10 commissioners agreed that the Community Reinvestment Act, which a lot of folks had blamed for this crisis, wasn’t a factor.
Nine out of 10 commissioners agreed that the credit rating agencies fell down, that mortgage fraud was rampant. But here’s what I think is important – most of this book, forget people’s conclusions, most of this book is pure fact, pure evidence.
The official chronicle of what happened in this country over the last 30 years to bring us to the point where we had this choice, either let the financial system collapse or put in trillions of dollars while millions of Americans still lost their jobs, their homes and their life savings. You cannot change the facts, and I think one of the most important things we’ve done here is lay out the truth of this crisis so it cannot be rewritten.
Let me comment briefly on Mr. Issa. He says he now wants to investigate us, and I think this is a very troubling phenomenon. We had an investigation of integrity; we had a lot of people, researchers, investigators, who gave their lives to this in the service of their country. We had citizen commissioners.
I think it’s a very chilling effect for a member of Congress to now want to investigate this commission for its work. I believe its work because we came out with some very powerful findings. I think it is very chilling, and it’s too reflective of what happens in Washington.
Paul Krugman wrote a piece on this in “The New York Times” in which he called it “intimidation, not investigation.” We want to make sure that malfeasance on Wall Street, we want to make sure that climate change, critical issues of our nation can be investigated, and I guarantee you, this was a full and fair investigation into the facts and no one in two weeks – not anyone from the powerful financial industry has laid one piece of doubt on the facts we laid out.
Tavis: At the same time, not one person from the financial industry, to my mind, is going to pay anything for this. The American people have paid and will continue to pay a huge price for this collapse. Disabuse me of the notion, if you can, that anybody on Wall Street is going to pay a price for this.
Angelides: Well, there’s been – here’s who’s paid the price: working Americans have paid the price, not Wall Street, not people in political or financial circles of power, and I think this is very disturbing to most Americans and it disturbs me.
We were not set up as prosecutors. We were told that if we found potential violations of law we were to turn those over to the attorney general and appropriate authorities, and where we found information we referred it to the proper authorities.
But I think it’s time that people step up, prosecutors take a look at all the evidence that’s been gathered over the last three or four years, and I do think we need justice in this country. But the right kind of justice, the ultimate justice is that people understand who was responsible, and we’re very specific in this respect.
People like Alan Greenspan, who didn’t believe in regulation, the CEOs of these major corporations. There was lack of accountability and ethics, yes, at the community level. People took loans they shouldn’t have taken; mortgage brokers put people in loans they shouldn’t have been in.
But in the end of the day it’s the people who sought positions and responsibility, and I do think the American people are entitled to know the facts, to see justice done, and most importantly, the real lesson here is that we have now built an economy where in 1980 the financial sector was 15 percent of the corporate profits in this country.
By the mid-2000s, over a third of the corporate profits were in the financial sector. It’s time we start having a financial sector that helps build jobs, not just creates more and more securities, financial engineering.
Tavis, one point I want to raise – this was all supposed to be about putting people in homes, but the fact is that in 2004, the spring of 2004 is when homeownership peaked. After that it was all about packaging, repackaging, selling securities, making money on Wall Street, not creating more homeownership in America.
Tavis: Two things and I’ll let you go. Here’s what I just find absolutely asinine and beyond troubling for me about this, and there’s a long list of these things, but to your point now – whatever one thinks of Freddie Mac and Fannie Mae, and I’ve had my critiques of them, the White House now lays out a plan to rush them out of business, but the folk in Wall Street, the really greedy people, they’re not just in business.
They’re making more money than ever before, and the same president that wants to push Freddie Mac and Fannie Mae out of business is now begging these titans of industry to loosen up the trillion dollars they’re sitting on to pour that money back into the economy.
That disturbs me, number one. Number two, I have no reason to believe whatever you told Attorney General Eric Holder, who I like personally, I have no reason to believe that given the cozying up that the administration is doing right now to business, getting ready for this reelection, trying to move to the middle, trying to out-Republican the Republicans, this attorney general ain’t going after nobody for anything they did relative to this crisis, and I think the American people ought to be concerned about that.
Angelides: Well, first of all, on Freddie and Fannie, let me say this – they made big mistakes. But I will tell you, we have evidence in here their loans were markedly better than the worst stuff on Wall Street. When you take the same kind of borrower, the default rate of Wall Street loans is four times as high. Fannie and Freddie need to be reformed, as Wall Street needs to be reformed.
Let me say something that Barney Frank and Chris Dodd passed financial reform legislation. There’s a lot of power in that, but now there’s going to be efforts to stop the full implementation and we need that law implemented, in my view.
In terms of justice, I do think there needs to be justice here. Not hangman justice, not just going after people, but I think prosecutors need to look at what happened in this country between 2003 and 2008 and they owe it to the American people to make sure if laws were broken that people are brought to account.
Tavis: From your mouth to God’s ears. The book is called “The Financial Crisis Inquiry Report.” They’ve been at this for a couple of years, doing a lot of work, going back 30 years to figure out how what happened in 2008 did, in fact, happen.
They conclude that it was avoidable, and further conclude that government was not ready to deal with it anyway, but thankfully, a lot of recommendations in here for how to avoid this ever happening in this country again. The chairman of the committee was the former California state treasurer and former gubernatorial candidate on the Democratic ticket in this state, Phil Angelides.
Mr. Chairman, thanks for your work and thanks for coming on to talk to us about it tonight.
Angelides: Great to be with you, as always. Thanks for your work.
[Walmart - Save money. Live better.]
Announcer: Nationwide Insurance proudly supports Tavis Smiley. Tavis and Nationwide Insurance – working to improve financial literacy and the economic empowerment that comes with it. Nationwide is on your side.
And by contributions to your PBS station from viewers like you. Thank you.