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January 23, 2009

BILL MOYERS: Welcome to the Journal. The mantra echoing from the capitol is "A New Era of Responsibility."

PRESIDENT BARACK OBAMA: ...a recognition, on the part of every American, that we have duties to ourselves, our nation and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character than giving our all to a difficult task.

BILL MOYERS: Well we'll find out what this means as President Obama confronts one of his first big challenges — the bankers and the bailout.

Usually it's the bandits robbing the banks. But now it's getting hard to tell the bankers from the bandits. Where have they stashed the loot — that 350 billion dollars of our money that the Bush Administration lavished on them to jump-start our failing economy?

For a story in last Sunday's "New York Times", largely overlooked in all the pre-inaugural hoopla, reporter Mike Mcintire reviewed investor presentations and conference calls to see how bankers talk when they think the rest of us aren't listening.

This from Boston Private Wealth Management, a healthy bank that was handed $154 million:

"With that capital in hand [...] we'll be in a position to take advantage of opportunities that present themselves once this recession is sorted out."

Once this recession is sorted out? Those funds are supposed to generate loans for people and small businesses in trouble — not to help banks ride out the recession on a cushion of cash.

Then there's this bit of Simon Legree mustache-twirling from the chairman of Whitney National Bank in New Orleans. They've received 300 million dollars in bailout boodle:

"Make more loans?" he asked. "We're not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans."

I'm not making this up — Flushing Financial crowed that it was newly flush enough to use the bailout bucks to raise the ante and buy new companies:

"We can get $70 million in capital," their CEO said. "So, I would say the price of poker, so to speak, has gone up." And, so to speak, he's playing with our chips!

REP. JESSE JACKSON, JR.:The joint resolution is passed.

BILL MOYERS: Twice this week, the House cast symbolic votes urging the new administration to clamp down on how financial institutions spend their bailout money. And on the morning after Obama's inauguration, his choice for treasury secretary, Timothy Geithner, faced some tough questioning on Capitol Hill.

SEN. RON WYDEN: [...] it seems to me the Fed had significant supervisory authority there. The alarm bells were going off. And I want to know what you, looking back, would have done differently.

TIMOTHY GEITHNER: [...] our system created a very complicated set of accountability and responsibility among the myriad of supervisors and regulators responsible for overseeing bank holding companies. And part of the failure in the checks and balances was-

SEN. RON WYDEN: Should your supervision have been more effective?


SEN. RON WYDEN: Thank you.

BILL MOYERS: So as our new president faces off against the Wall Street mindset, we may soon find out if his velvet gloves cover hands of steel, or not. We'll talk about Obama's agenda and the strength of his resolve with my next two guests.

Historian Thomas Frank wrote the best-seller "What's the Matter with Kansas?" and more recently, "The Wrecking Crew." He is the "Wall Street Journal's" newest weekly columnist.

David Sirota spent years in electoral politics before turning to political journalism. His weekly syndicated column appears in newspapers across the country and he's written two best selling books, "Hostile Takeover" and "The Uprising".

BILL MOYERS: Welcome to both of you.


BILL MOYERS: What's at stake for the president in this bailout and banks issue?

THOMAS FRANK: Well, this is the biggest issue of them all. I mean, you've got to do this right, this is the heart of the recession. This is what's caused it all. It's also a huge opportunity if Obama chooses to essentially remake the economy or to adjust the economy and make sure this sort of thing doesn't happen again and to make sure that, in fact, the entire sort of way that wealth has been distributed, prosperity has been experienced in this country for the last 20 years, is done differently, done right next time.

Second of all, look, and this is the sort of broad, grand historical view of things. For the last — since the 1980s, the financial sector calls the shots. It not only is larger than manufacturing, it tells manufacturing what to do and every other sector of the economy.

Well, now look what's happened. Wall Street has driven us off a cliff, okay? It's time — I mean, it is their day of reckoning. And to think that they're just going to get bailed out with no strings attached, they don't have to change the way they behave after doing this to us as a country, that's inconceivable to me. We're now probably close to being the majority shareholders — you and me, the public-


THOMAS FRANK: -majority shareholders. We're like the public is going to be — either is or will be soon the majority shareholder of a lot of banks in this country. And yet we will not have the power to vote, right? We can't vote the shares. We can't appoint directors. These are the conditions of the TARP, of the Troubled Assets Relief Program, right? That's a terrible blunder.

If we're going to throw all that money to these people, we need to be able to tell them, look, you have to do — you know, you have to let us have directives. We have to be able to have a voice in the operation of this business.

BILL MOYERS: As you speak, the Irish government is nationalizing the third largest bank in that country. And governments all over the world, including Britain have nationalization on the table. Are you wishing that Obama would at least put nationalization on the table?

DAVID SIROTA: The question is, are you going to do nationalization or are you going to simply throw money at the current banks, the banks the way they exist. In other words, if you're going to do nationalization, do nationalization.

BILL MOYERS: We've partly done it, with taxpayer money. Partly. I mean, it's partly nationalized.

DAVID SIROTA: We've gotten all of the bad stuff and none of the good stuff of nationalization. Nationalization in other countries means that the government has control over the banks with that money that they put into the bank.

BILL MOYERS: That's what Thomas said — nominates directors, has oversight-


BILL MOYERS: -regulates it, right?

DAVID SIROTA: Exactly. What we have done is simply handed the money over with no mandate to actually change the behavior, change the structure of the banks, change the management of the banks. So my take is pretty simple.

If we're going to throw this much money — remember, $350 billion is half the bailout. That's $1,100 for every man, woman, and child in the country. If we're going to put that kind of money into the banking system, we should get much more leverage. And I think the one other thing I think is really important, you'll notice that in the entire debate over the bailout, nobody has really tried to make the point or ask the question: is spending $700 billion, a trillion dollars, giving to the banks, is that the best way to improve our economy?

No one has said that this is a better way to lift the economy than, say, passing a universal healthcare program, doing a jobs program, a New Deal-style jobs program. That part of the debate is simply off the table. We're expected to simply assume that the ways to lift the economy is to give this money to the banks.

BILL MOYERS: Some people are talking about treating the banks — not nationalizing them but treating them as utilities, you know? Like we do the electric company-

THOMAS FRANK: In a lot of ways we think about banks mentally in that way, right? That's certainly how we thought about, you know, the savings and loans. It's how we think about a lot of these enterprises. And yet, of course, that's not what they are at all. And that's not what their function has actually been in reality. Their function is — they're driving the economy, you know, they're calling the shots, you know, all across the whole system.

To think of them that way, I mean, you're talking about the segment of the economy that's been so fantastically prosperous. You know, when I went to college I remember all the kids going off to become investment bankers-

BILL MOYERS: Investment bankers, right.

THOMAS FRANK: -and stuff like that. And they were doing very well until a couple of months ago. And you know, that was — it was drawing all the best and the brightest into that field. I mean, to go off and to become a historian was a, you know, really deluded idea that I had. But to change banks into that, you know, into a sort of a utility, oh, man, I mean, you're talking about — that's an earthquake.

BILL MOYERS: Do either of you see any toughness in Obama as he approaches this issue?

DAVID SIROTA: Unfortunately, I think the actions that he has taken have been ones that are much more towards the status quo. I mean, he was the guy whose first exercise of presidential power was, right before he came into office, he threatened to veto any bill that Congress passed rejecting or limiting more bailout funds from going to Wall Street.

He has put in place into his administration people who have been either involved in the current bailout — Tim Geithner — or people who have really advocated for lots of the same free market fundamentalism that this bailout really epitomizes. So, you know, I'd like to hope. That's Obama's big word, "hope." The question is: Are we going to get change? We don't know.

BILL MOYERS: Tom, you even wrote a column the other day with the headline that said, in the "Wall Street Journal", "Obama should act like he won." Is he doing that?

THOMAS FRANK: You know, it's a funny thing because he — I love Obama. I voted for him many times. He was my state senator back in Chicago. I've, you know, followed this guy's career for ages. I think he's the greatest thing in the world. I don't understand why a man that just won a sweeping victory over the other party — you know, won a landslide in the electoral college and the other party, you know, is crawling off with its tail between its legs, you know, horribly discredited, everything they believe in ruins.

And he goes to that party and says, you know — he wanted a majority of the Republican votes in the Senate for his stimulus package as well as, of course, the Democrats. And I read that, I was, like, well, why? You just gave them a whooping that they're not going to forget in a long time, you know? You are in charge.

Let them, you know, why go to them? Let them come to you. And I think — you know what I think is going to happen is that he's going to discover very quickly what Bill Clinton discovered but then Bill Clinton never — you know, that these guys are implacable, you know? That they are not going to come around, that they don't have his best interests at heart. And they don't even have the nation's best interests at heart. I'm sorry. I'm very partisan.

DAVID SIROTA: I mean, I disagree with you a little bit. I disagree in that I think Barack Obama can pull five or ten Republicans with — and by pushing a very progressive agenda. The issue is how much is he willing to sacrifice for political aesthetics? How much is he willing to water down an economic stimulus package with discredited tax cuts in order to get 30 or 40 Republican votes?

I'm very convinced, if you look at polls on issues like healthcare, on issues like, should the government spend to create jobs? I'm very convinced that if he pushes a robust, progressive, Democratic package, he, with his bully pulpit, would be able to peel off the necessary five, six, seven Republican votes in the Senate. But, again, the question is how much is he willing to water that down to get 20 or 30?

BILL MOYERS: Yeah, he seems to want an 80-vote margin, including majority Republican support, rather than to go for a 60-vote victory with only a few Republicans. Do you think that's part of a long-term strategy? Or does it reflect a man who really is geared to the consensus?

THOMAS FRANK: I think it's also he's coming into office at a moment of crisis. What presidents traditionally do — and I'm not a presidential historian. But this is what presidents traditionally do at moments like this is they reach for the bipartisanship. We're all in this together, government of national unity.

BILL MOYERS: Lyndon Johnson. You know, I served Lyndon Johnson in the White House. And his mantra was right out of the Book of Isaiah, "Come now and let us reason together." I mean, every time I hear Obama call McCain or go to see the Republicans or meet with them, I think of Lyndon Johnson reaching across the aisle trying to create this consensus.

DAVID SIROTA: But I think that's okay. The question is, what is the policy sacrifice? That — the rhetoric is great.

BILL MOYERS: So what do you think he's giving up at this moment? It's too early to really know. This is what? Three days into the administration. But what do you-

DAVID SIROTA: Well, we know what he's tried to give up. For instance, his first draft of the economic stimulus package included $400 billion or 40 percent worth of tax cuts, including a couple of corporate tax cuts that would have rewarded the banks — retroactively allowing them to write down some of their losses. That was rejected. He brought it up to Capitol Hill and the Democrats in the Senate said, no, this is not acceptable.

But the point is, is that he brought that up in order to try to get that 80 votes. And so I'm all for reaching out to the other side. The question though, is do we have to water down the policy? That's what we don't know about Obama yet.

BILL MOYERS: You also wrote, "Democrats have massive majorities these days not because they waffle hither and yon but because their historic principles have been vindicated by events. This is their moment." What do they have to do, the Democratic Party, to seize the moment as you would have them do?

THOMAS FRANK: Or has the moment seized them? I mean, in some ways, events are in the saddle right now. And everything that — you know, everything that we've seen, we've seen a whole way of looking at economics, a whole way of looking at society crumble before our eyes just in the last few months. And I suspect it will continue to crumble.

One thing that might be done — you know, look, I think what's going to happen with Obama is that events are going to continue to push him. I think he's going to continue to go in my direction because I think, you know, I'm optimistic. And it's all about hope and change.

One of the things that Congress could do to sort of help this process along — and this would be — I think this would be good across the board. It would be good for our politics it would be good for the way we understand society. It'd be good for historians like me who want to, you know, be able to talk about the past, you know, the last 20 or 30 years — is have — remember in the campaign, McCain said we need to have hearings on what's gone wrong on Wall Street.

And it was obviously an effort to say, "Oh, let's not talk about this now." Well, you know what's funny? We do need hearings to find out what went wrong on Wall Street, just like in the 1930s where they had hearings that went on for years.

BILL MOYERS: Ferdinand Pecora. Right?

THOMAS FRANK: That's right. Yeah, he was not exactly the prosecutor. But he was the attorney that they brought in the Senate to conduct the hearings. And it was — they were very high profile — and they brought in all the sort of great captains of Wall Street, put them on the stand, and revealed to the world the sort of incredible and really evil things that these people had been up to.

BILL MOYERS: It was the first time, if I remember, that the public at large learned what the CEOs and the tycoons on Wall Street had been doing. And it actually led to significant reform, SEC and other things like that, because this fella was a determined. Roosevelt wasn't sure he wanted the Pecora Commission.


BILL MOYERS: The president didn't want to cause trouble, you know? But Pecora and the Senate persisted. And they came up with this extraordinary revelation about what had happened on Wall Street. And you're saying we should have a criminal investigation.

THOMAS FRANK: Not criminal. No, another high profile Senate investigation of these guys. I would — hell, I'd go down there and help them do it. I mean, I'd volunteer right now.

DAVID SIROTA: And that's the value of having a vibrant legislative branch. We have now gone through I think eight years of a legislative branch that has been a rubber stamp to the president. And I was particularly, you know, as a progressive, I was particularly disturbed by that when, in the two years, the Democrats controlled the Congress.

But just because we have a Democratic progressive president doesn't mean that we don't need a legislative branch. You brought up a great example of why a vibrant legislative branch is important. It can hold the kinds of hearings that need to be held. It can push Obama into a more robust agenda that perhaps as president, as a new president, he may not yet want to go.

BILL MOYERS: Now, politically, you've been, and journalistically, you've been at the heart of the progressive movement, and the progressive base turned out hugely for Obama. What does that base demand of him now on the issues, say, of Iraq?

DAVID SIROTA: Well, I think, first and foremost, he's got to stick to his campaign promise, which he seems to be doing on the issue of Iraq. The "New York Times" reported that in day one he convened a meeting of military leaders saying that he wants them to start planning for a drawdown of troops.

I think that is a baseline issue, considering he campaigned on that not only in the general election but in the primary. I think in a more broad kind of way, people want him to be more embracing, which he is, of the role of government in addressing issues like economic inequality, in addressing issues like income stagnation.

BILL MOYERS: Do you think he's a fighter? Both of you. You saw him in Illinois. You actually, in '06, you challenged Obama's progressive credentials and what happened?

DAVID SIROTA: Well, he called me up on the phone and he said, "You know, I want you to know I am a real progressive. And I think if you look at my record I'm a real progressive." And I went and I spent a day with him. And what I found is that this guy — this is a guy who's obviously very intelligent but is a guy who very much understands the rules of the establishment, the rules of the status quo and is always looking to maximize, to make change within those rules.

What I worry about with Obama is that here is a guy that has the power, really, to change those rules not just because he's president but because he's an inspiring figure. And we need a president to change those rules, to change those paradigms.

THOMAS FRANK: I agree with what David was just saying. I mean look, I went to the University of Chicago. But when a guy is, you know, Harvard University to Chicago, you kind of-

BILL MOYERS: You stopped too soon.

THOMAS FRANK: And but exactly what David said. He doesn't — maybe he does understand that he has the power, I mean, this is where they teach you the orthodoxy, you know? Harvard, Chicago Law School. I mean, these are the upholders of the orthodoxy, the idea that, no, we can't have an industrial policy in America. The market has to decide. We can't pick winners. Blah, blah, blah, blah, blah.

He now has the power to throw all that overboard. History is demanding that he throw it overboard. The — you know, the orthodoxy is discredited like at no time since, you know, the 1930s. It is, you know, it is in his power to do that. I think he'll rise to the challenge.

BILL MOYERS: But by nature, isn't he a centrist?

DAVID SIROTA: The issue is, what is a centrist? The definition of a centrist in D.C. is different than the definition of a centrist in the country. Centrism in D.C. means anything that passes the Senate by 99 to nothing, right? And as we know, usually things that pass the Senate 99 to nothing are to rename a post office or pass a corporate tax cut.

Out in the country, the center, the polls will show the center is get out of Iraq, pass a universal healthcare system, have the government invest a lot more in job creation and infrastructure rebuilding. The — what we don't know yet is whether Obama is going to represent that center, outside the Beltway, or if he is insistent on playing by the rules of Washington, the Washington center that says what we should do with the economy is simply give money to the banks.

BILL MOYERS: So what's the first thing you'd like to see him do that would convince you your heart's in the right place?

DAVID SIROTA: I'd like to see him pass a much bigger, much more robust economic stimulus package that was focused almost exclusively on spending, on the kinds of public spending, expanding healthcare, infrastructure spending, and back off the idea of corporate tax cuts.

THOMAS FRANK: I would add to that — it's judgment day for Wall Street. We need really strong oversight. Regulation is back. And we don't — you know, forget bringing in, you know, these people that have been part of the problem. Bring in tough regulators. And they're out there. We have lots of them. You know, they know what they're doing. Bring them in. Turn them loose on Wall Street.

BILL MOYERS: "The Economist" magazine has said that this, quote, "economic crisis" may increase the appeal of the Chinese model of authoritarian capitalism — right here — no, this is "The Economist," which is no socialist rag, right? You would agree to that. I mean, is that a real threat? You wrote recently a column called "The Rise of American Czarism."



BILL MOYERS: Is this what you're talking about?

DAVID SIROTA: It is. It's the rise of our desire to have dictators with extralegal power that the Congress or the president appoints to force things through. It really — it's a way to subvert democracy in the name of progress.

BILL MOYERS: Isn't it the way to get the trains working on time? Isn't that what people mean by it?

DAVID SIROTA: That is what they mean. But what it does is it puts democracy in competition with progress, right? You're basically saying we don't think the regular democratic process of hearings and oversight is enough to make progress, to pass legislation. So we're going to empower essentially a dictator.

BILL MOYERS: Give us an example. And you provide one from history, if you can, of how this plays out.

THOMAS FRANK: Hank Paulson.


THOMAS FRANK: He's a disaster.


THOMAS FRANK: He was making the policy just as he saw fit, you know?

BILL MOYERS: But he was secretary of the treasury. He was invested with that authority, right?

THOMAS FRANK: Ordinarily he-

DAVID SIROTA: Not ordinarily. He was appointed as the czar. Congress delegated its power of the purse to Paulson. And now what do we have? We have a bailout that we know hasn't lifted the economy. We've got an oversight panel, an independent oversight panel saying we don't even know where the money is going. And that's because there has been no public input. The democracy, the oversight, the input was completely offloaded for the czar.

THOMAS FRANK: And not only that but he seemed to make policy just by whim. Like, one day it's, you know, we're going to go and buy the troubled assets. The next day, no, no, no, we're going to bail out the auto companies, you know? We're going to have a stimulus package. We're not going to have a stimulus package, you know? And it was all up to him.

DAVID SIROTA: And by the way, you know — in empowering Paulson, let's not forget Paulson, before becoming treasury secretary, was a top executive at Goldman Sachs, which has received or is part of the industry that has received so much money. So we've not only empowered a czar and subverted democracy, we've given that power to somebody who has direct connections to the very industry he's supposed to be regulating.

THOMAS FRANK: And do you remember the bill that he — the original demand to Congress for the TARP funding? It was what? Three pages?


THOMAS FRANK: And one of the things was, like, there'll be no accountability, no oversight, no hearings, no looking into this ever? Unbelievable.

BILL MOYERS: And Congress did rebel.

THOMAS FRANK: That's right, they threw that out.

DAVID SIROTA: Exactly. Congress said, no, we want more oversight. The problem was, of course, is that the oversight measures that were written into the bill included all sorts of loopholes to the point where, I kid you not, the Treasury Department was caught on tape in a conference call with Wall Street analysts saying that the executive compensation limits that Congress was bragging about were written to be essentially unenforceable.

THOMAS FRANK: So the czar gets his way but, Congress, ha-ha, no nothing, you know? Blow that off. It's amazing.

BILL MOYERS: And that's what the czars are for, to make it work better, right?


DAVID SIROTA: I don't buy into that. I don't buy into the idea that in order to make government work you've got to essentially create a dictator or a czar or an authoritarian. I think "The Economist" is right. The impetus at this moment is to move towards authoritarian capitalism. But I think in order for us to be a strong country, we have resist that. I mean, we are a strong country because we're a democracy.

BILL MOYERS: So what do you see in Obama that you think will justify your voting for him over and over again? No, that's a serious-

THOMAS FRANK: Now you're putting me on the spot here, Bill.

BILL MOYERS: No, no. You're a historian. You can't see right quite yet.

THOMAS FRANK: Yes. That's true. That's true. And I will admit that one of the reasons that I was so pleased to vote for Obama in the primaries was that I thought that it would bring a new crowd to Washington, that it would be the end of this sort of centrist nonsense. Okay, call me gullible. But-

BILL MOYERS: All right, gullible.

THOMAS FRANK: -it would be, you know, but it would-

BILL MOYERS: Thomas Gullible Frank.

THOMAS FRANK: Yeah. You know, that you would not have a return — just a return of the Clinton Administration. That's what I was looking for. And he seemed to be offering that. You know, new people, new blood. Unfortunately, you know, he gets in there and he's brought in a lot of the Clinton — I'm not happy about this.

At the same time, I still have — I have a great deal of faith in the man. He — look, I've met him in person. I have never met a politician as intelligent, as rhetorically gifted. He's brilliant.

DAVID SIROTA: I think the other positive about Obama has not much to do with Obama. The upsurge in people's engagement in politics, the hope that he's given people, the desire for change that he has harnessed I think offers a potential to actually make change, whether he wants it or not. In other words, he may have created something that he, in many ways, wasn't prepared for.

I think Obama has unleashed, through his oratory, through his candidacy, this force that could be used for very good and could push him in a more bold direction than even he may want to go. It's like in the Roosevelt Administration. Roosevelt didn't come out for Social Security and, you know, give us all the great things that he did out of the goodness of his heart.

He did it because there was a movement behind him that was constantly pushing him for these things. And that's what has to go on with Obama. The movement has to continue. It can't just be one guy. The movement didn't just exist to elevate this one man to the Oval Office. It has to keep pushing him.

I would use the term "tough love" to describe it, that's the stance that we have to take. But we have to keep pushing. And I think that's — look, like I said before, events are in the saddle. It's going to have to happen. It has to happen. If it doesn't, we are, you know, if we're going to just go back and repeat the mistakes of the last 20 years all over again, oh my god, that's you know, catastrophic. Can't happen that way.

BILL MOYERS: Tom Frank and David Sirota, thank you for being with me on the Journal.

DAVID SIROTA: Thanks for having us.

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