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tv   Book TV  CSPAN  November 22, 2009 12:00am-1:00am EST

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but building a fancy palace was an extravagance beyond his respect. >> of all of his accomplishments did he ever think of science, medicine, or was that sort have gone? >> that is a good question. as a little side note, through much of his life, what we would think of as modern science and technical education and development, and he was a self educated engineer is essentially. he was probably one of the leading maritime architects of the paddle wheel aripeka leap personally designed is dean votes and steamship often going against conventional wisdom so he was technically quite accomplished when it came to naval engineering, but when it comes to charity, he was a man who was not known for charity. his friends claimed that he hated boasting.
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he hated braggarts of the claimed he engaged in private charity. who knows whether he really did that at the end of this like he did make a point in telling vanderbilt university in nashville. however, i think there's good reason to think that yes he wanted to create a new institution of learning because he did feel for what is like the fact he was uneducated and every chance he had this peak, this was a great air of oratory, you could not have tea without somebody getting up and giving a two hour speech. ..
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>> what would vanderbilt say to obama right now about what is going on with our financial system of our economy? what would his advice be? >> he would wonder, first of all, how a black man became president. that would astound him. that is a difficult question. should we make this the last questions? this is the sort of question
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that historians hate. frankly anyone of you could get up and make a pronouncement on this. it is utterly unthinkable. what i would say on this, there are too counterbalancing sides to him. he believes in laissez-faire, which is a radical philosophy in his youth but neatly citizen. he didn't believe in the government getting involved in the economy. as he once put it when they were trying to pass a law in new york state to regulate the railroads, he saw it in terms of private interest being the key to it will economy. if you can pass a law that makes effectively that's fine, but i don't think you can. he thought society works by everybody's pursuing their own interest. on the other hand he grasps the economy.
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the federal government took on unprecedented involvement. when the panic of 1873 it he stepped in and said the treasury should be increasing liquidity. he was calling for a limited but a clear type of federal intervention in the economy. very much limited compared to what we're doing now. i can't tell you what he would say to president obama. at the very least he would have a sophisticated view and a pragmatic view. so he did have laissez-faire jacksonian believes. on the other hand he took the world as it was. he saw what he needed under the rules that existed. so he probably would have, you know, at the very least a sophisticated but pragmatic view. >> he would be a little bit
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astonished by businessmen who expected the government to bail them out and still expected to have a major say in how they would run things. he would be amazed at that. the fda idea that you could reln somebody else and still expects to be in charge. >> you make your bets and live by the results. and he lost he did everything he could to get back what he thought was says. you know, you pick your friends, and you have to suffer the consequences. thank you very much. [applauding] >> t.j. stiles is the author of "jesse james: last rebel of the civil war." mr. stiles has taught at columbia university. wednesday he won the national book award for non-fiction.
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>> coming up next book tv presents after words, an hourlong discussion between the host and the author of a new book. this week nomi prins former managing director at goldman sachs talks about her book "it takes a pillage." she discusses the book with senator bernie sanders, the author of the memoir "outsider in the house." >> let me begin by thanking c-span for the opportunity of interviewing nomi prins who is the author of "it takes a pillage: behind the bailouts, bonuses, and backroom deals from washington to wall street."
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when i was in the house for 16 years i served on the financial-services committee. the list to say i have been actively involved. they key very much for being with us. >> things you very much, and they do for taking the time to be here as well today, senator. >> let's begin with a that a bit of background. where were you born? what happened in your life to end up -- to have you end up on wall street. >> i was born in upstate new york. my father had at one point been a professor. he was very much with ibm at the time. a mathematical type of family. a lot of work with numbers from a very, very young age.
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i wound up going to a state school of little closer to new york city. getting closer to wall street. my father said math is the way to get a decent living and find a job. as it turned out, that was true. altman lead that was what was wt was being hired on a wall street at the time. a lot of math and the engineering and computer science. so what i wanted to do was move to new york. i wound up getting my first job at chase manhattan bank before it was part of j.p. morgan bank. i did a transition. >> nineteen. >> yes, i was. i started there doing a lot of analysis and computer work. >> what was it like? other than the parties.
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>> i was the oldest child in the family. i think that might have had something to do with it. a sense of responsibility and financial independence. i figured i was only going to be there for a year or two. work in a musical theater. new york instead. as it turned out at a mound of staying there a very long time through a through a number of dt firms. i think it just became easy. with all of the harness that comes as wall street he you did make enough money to pay rent in new york city. nothing like the kinds of films that have been made today. >> let me ask you this. you read the book as being in the belly of the beast. what impact on your views occurred as a result of your
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working for goldman sachs? >> i worked there for two years. it was the end of my career from wall street. i ejected myself from wall street. >> i was over in london. there for seven years. that was really a lot of the workout was doing. >> so what impact on your experience? you were on the inside. >> there is such a tremendously competitive environment. in wall street it is almost like you come in every single day. every single day trying to figure out how much credit you can take for a particular trade, if you can beat someone on another desk or in another area of the firm. you actually raise to the offices in order to be able to
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tell them what you did, take part in a certain transaction. then what becomes this immediate type of environment where if you don't do that you don't succeed. if you are someone who wants to try and succeed you get involved in this game. i ultimately found that very distasteful and really quite empty. the environment is very much like that. it is very intense from a gamesmanship and a power sort of play as well is it is really like a military strategy. literally from whose name be put on an e-mail first to his office you go into first to who you tell about a certain trade. >> let me ask you a question. it is on the minds of marion's of americans. right now we are in the most serious economic decline since the great depression.
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17 percent of the american and delta workforce is in that posi. it is. all because of the greed of the people on wall street. the first question, nobody could have predicted this. it's just came out of the blue. it's just amazing. totally unpredictable. >> it was absolutely predictable for a lot of reasons. that mentality. the reason this crisis happened was because there was a desire to find products and create aspects within wall street that made money. they don't really care. it doesn't matter what does thoe aspects are. i like it like it's a upside-down pyramid.
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what wall street does is it takes them and it creates new securities, this whole other band. and from those it can make fees, trading commissions and a lot of other profits. they make $300 billion just on creating securities. not on even trading them back and forth, just on the sheer creation. and then what they do is they take the securities and borrow against them to create new ones and merge and acquire and trade and speculate. it all goes up board. that is why this whole thing fell down. it was that all of the securities and trading on top of them toppled over. >> you know what, most people when they went to school and you learned about economics, maybe they sell automobiles and clocks. maybe they sell shoes. here is my really tough
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question. what the hell do they do on wall street? what did they make? what to the produced? >> they produce assets that dolly have value because they choose to say they have value. it absolutely does. wall street exists and particularly investment banks, the most speculative components exist purely to create, engineering aspects. it's not in jerry a train track. its engineering something that only has value because they say it does. it gets its value from that. i have a quote in the book which is great from a senior partner at goldman sachs. it is one of the only -- finance is one of the only arts that is predicated on the creation of a
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absolutely nothing. it is only by pushing that nothing because people continue to buy it that this continues to churn and you create these upside-down pyramid is of risk and assets that don't truly have intrinsic value. >> so at that time when our manufacturing ability is declining, we lost millions of good manufacturing jobs. our infrastructure is in disrepair. we are seeing some of the best minds in the country going into a sphere of activity which produces virtually nothing that is useful to the ordinary person. >> it is not useful to the ordinary person. you liggett a company like like goldman sachs. they pay almost 50% of their profits out and bonuses. in any type of production company the amount of money that is paid in terms of compensation is maybe 20% or 22%.
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all of that extra fluff and profit that is really just about moving transactions and moving money goes directly into these extravagant bonuses and extravagant compensation structure. it doesn't go anywhere. it doesn't even pretend to go out anywhere. >> it looks like we are involved in two separate worlds. something like 40 percent of the profits in america are now being made on wall street. >> of course in new york city it is an outstanding number because it is not predicated. there are all these other agencies. they come in and stamp value by deciding that these assets are
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worth the certain amount. states buy it. individuals hear about it from their local bankers. so basically this infiltrates the entire system. >> i remember, back in my state people are really struggling. people are losing their jobs. their income is going down. the economy is doing really good. year after year, this was really astounding. year after year we heard from the bush administration that from their perspective the economy was doing great. explain to me how they could believe the economy was doing great with the middle class was collapsing and we were getting closer and closer and closer to the edge of a major global
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financial crisis. >> because for them it was great, and that's the problem. 2006 was the record year of bonuses on wall street. between 2006 and 2007 foreclosures in this country just between march 2006 and march 2007 increased by 47%. it isn't like there was an information coming in that would indicate there is a tremendous problem brewing. and is not like somebody treasury secretary at the time could not have seen that. they were paying out record bonuses. they were manufacturing. faber manufacturing and even greater amount of these assets. they actually knew things are not going to continue to stay. there was less trading going on which is why they were creating
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more these toxic assets. wall street knew that the game might be up. they pay themselves wow. they created these assets. on the other side of all of this was declining loans, increasing foreclosures, increasing defaults. >> my end of the street, hearing these guys talk it is like there living in another world. you have bernanke himself who for a while was a major economic adviser. that did not hear anything from these guys. if we don't act we may have the collapse of the finances. >> i don't think they were looking at the data. if they were they were choosing to ignore it or act optimistic because the serbs a political agenda. you don't want to be the party in power when the crisis
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happens. if you can push it along and will it to not happen and give -- this is why the get it from the outside. give an optimistic spin you can push it on to the next guy or the next administration. >> he almost make it. >> he almost made it. >> if it had happened in the beginning of two dozen nine it 9 it would have changed. >> talk. wall street spent $5 million pressuring congress through lobbying and campaign contributions to deregulate. what impact did that have?
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>> the repeal was the catalyst for what ultimately became the collapse. they were all predicated on the idea of merging and acquiring and banking institutions becoming not just bigger, but leading into the repeal. i voted against it. >> at think you also said all the things that will happen to consumers. it did happen. all of the warning signs unfortunately came into fruition. the reason for that is when banks merge they can turn it and traded in speculate because it is there.
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said that is what ultimately causes the crisis. you have extra capital and access to consumers. you can turn it into something that ultimately becomes a crisis. >> during those years and after everybody rolled out the red carpet, the philosophy that the best thing we could possibly do is do away with all government regulation. it has been great. some of us did not believe it. unfortunately the majority did. here is my political question. the president who appointed alan
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greenspan was the first president bush. he was reappointed. the first president was the right type of politician. reappointed. a liberal democrat named bill clinton. then you have some years later an appointment by a white wing of republican. a liberal democrat wants to reappoint him. what is going on? i generally believe there is a difference. how does this happen? >> there has not been a change in any of the regulations that come on to the financial world. unfortunately. >> love me back that up. a he has speak as an
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independent. would you are essentially saying, are you kind of key financial is used and how we're dealing with all streak into is head of the fed. >> it seems like one of the least partisan things in washington. if you look at just the sheer regulation that were passed and the continuation there is not a tremendous amount of difference. there is more financial deregulation done under clinton. >> and the secretary of the treasury. >> the secretary of the treasury who happens to have also been echoes ceo of goldman sachs. that is a whole other issue. wall street and to goldman sachs into the presidency. whether or not there is a democrat or republican president. >> when i was there he was head
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of the goldman sachs. became treasury secretary. but of course a democrat. they were both for the same de regulation. you could have almost into changed them at any point in time. well, of course, if we talk about where he was he was head of the new york fed. it is through the new york said that the bailout money came. hysterically it had a revolving door between wall street. right now jamie diamond has a senior position. he runs a large, large banks, j.p. morgan chase. associated with sandy lyle who is running a citigroup. if you are running for president you have perhaps the closer relationship to wall street than
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almost the chairman of the fed. >> let me mention something here. last year i had ben bernanke came before the budget committee. this was during the whole bailout process. as you know at the very least we know that the fed lent out over two trillion dollars in zero interest loans to financial restitutions. so i said to chairmen bernanke, can you tell the american people, you're putting their money and risk. who got the money. he said i'm not going to tell you. $2 trillion and you're not going to tell the american people. by the time that day was over we
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introduced legislation to make him tell us. but talk a little bit about how can the head of the fed say with a straight face i'm not collected tell the american people where $2 trillion of their money at risk has gone. >> i know. it was astonishing. at the same moment or a few minutes later he said it would actually be counterproductive. the remember the word counterproductive. how do you possibly get to that time. i guess the reasoning beside the fact of a whole lot of banks it, that information disclosed because that mation disclosed because that would indicate how weak they actually truly are. i think bernanke was basically using that face and trying to somehow justify it by saying if people knew, if people actually knew we would have this catastrophic run on the banks.
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the red lines, 1933 all over again. whether he believes that and not. i personally believe that had to disclose this information from the get go, no one trusted anyone. we actually had full disclosure of books back then. what the fed might have been knocking at, we could have avoided spending a whole lot of money. by the time he got to that moment he was so entranced in the idea that if anyone knows what actually went on it could create. and it would. it would create a lot of anger. >> that is exactly what he did say. we took that concept of the need for transparency to the floor of the senate during the budget discussion, and we won in a bipartisan vote. the average member of the senate or the average american cambyses
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me. maybe we need a 1800 number. >> exactly. but i'll tell you one thing, the yard is extending more money and had more open plans to banking systems. altman the there was about 6 trillion worth of facilities created much of went to the new york. they don't ever get them all. >> to knows about this? >> some of it is a clause that public. not what collateral has been posted. that we are trying to get to the bottom of. but when those facilities were open, when they were created, there is the information that you can kind of see to digging through the web sites. i did that.
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>> you could do it. >> you can't do it normally. what did you spend? where did these bandits to back there is no report that exists like that. >> i'm going to put you on the spot. based on his record do you think president obama reappointing bernanke was a good decision? >> made a lot of mistakes. leading up to it in terms of not looking at the information. there were economist telling him. ..
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may be deleted ale lovette taghreed eight much less stable lance eat then we even had before, last year's crisis. >> host: if you are not one of
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those folks who say thank god the decisive action, the bailout, were over the hump now, good times are coming. >> guest: riedel darica, for some banks because of the federal capital they can use to go back into trading in their stock in profits are up in bonuses are up but in actuality there is more risky and more consolidation and more power a monks that you were a group of banks that there was before the crisis so was there a crisis averted? i think it was delayed. that is the way of looking at it. i think there are other decisions that could have been made that would not involve trillions of dollars of public capital behind the banking system without changing dramatically the landscape fifth of the banking system. >> host: as we speak, president obama has indicated that those financial institutions that have been built up, he's going to cut back substantially on the ceo compensations but the other institutions like goldman sachs
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are running is quickly as they can back before the crisis. tell me bout hutspah. how does a group of people who caused this terrible crisis and suffering for tens of millions of people in this country, after getting buildup by the taxpayers of this country, go back to a huge compensation packages and bonuses, go back to exactly where they came from? >> guest: they feel incredibly ridiculously in title. they go back to their offices. great, crisis averted, let's go and make money, which there. goldman sachs is on track to make $20 million in bonuses next year. that is a couple more billion dollars than they made the year before the crisis. it is really this mentality of what we do here is intense and it is important and it is this moment in this trade and it is this transaction and and what happens on the outside is their fault. >> host: again as an elected official people sometimes
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criticize appropriately people in congress living inside the beltway mentality. i can tell you in my state will end in this country there is fury, there is rage against these people and apparently they are not interested. >> guest: they don't care because nothing has happened to them. you know, the rage in the righteous rage of the public doesn't affect what they get paid and it has not affected how they operate. they said that their last quarterly earnings they are going to continue to do what they do. they are very open about it. they are not trying to necessarily hide this information. >> host: we are going to take a break with nomi prins his excellent book, "it takes a pillage," explains the thing to a lot of people what is happening the last year and what is likely to happen in the future. we will be back in a minute. >> after words and several other c-span programs are available for download as podcasts. more with nomi prins in senator
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bernie sanders in just a moment. these after words who was of gordon senators bernie sanders
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continues. >> host: we are continuing our discussion with nomi prins who is the author of "it takes a pillage." nomi it seems to i think many americans that we are living in a world deeply divided and a nation deeply divided. we have a wall street up there. you use the phrase a sense of entitlement. these guys make hundreds of millions the year, have hedge funds and they are doing their thing and meanwhile we have the rest of the country, which hasim and many instances really deep declines in people's standard of living, increasing poverty, people losing their health insurance. what is the connection between the two? why is wall street get bailed out and get richer while people on main street lose their jobs and their health insurance and get for? what is that about and how we turn that around?
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>> guest: for one thing wall street has a tighter connection to people in washington and much more money to lobby and everything else of there is more of a sense of keeping what they have and getting more. there's no such thing as an ethical wall street right now. there's no such thing as we are going to stop ourselves from making as much money as we can. >> host: let me just mention this which to me is kind of a sound board. you might have thought that the people on wall street caused the severe economic crisis. that is one of them. one of these guys might a common tbn said you know americans i am really sorry. arcuri got away from massimino all the suffering we have caught, i'm sorry. i have not heard that. >> guest: there is no contrition, no connectivity to the rest of the country because honestly the people that run these firms have almost no contact. literally they don't have a lot of contact with the real individuals but the result of the crisis that we all saw last year in the bailout in just the decision to open a lot of
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federal funding in subsidies and guarantees in cheap loans and everything to wall street as if that with some of trickle down to the rest of main street, it also had the opposite effect. it kind of fortified the standing people on wall street and the banks that survive to continue doing what they are doing. >> host: you said this is exactly true, to be clear i voted against the baylock come up but the line was, this is not a bailout for wall street. this is a bailout for main street. we are working day and night to save main street but you don't agree with that assertion? >> guest: not only do i not agree with any of the numbers we have shown that have legitimately indicated that this hasn't been the case. a credit did not listen. in fact in the bailout, when t.a.r.p. was passed and that was only one component of the bailout, there was a tiny piece of that also allowed the fed to pay out more interest on reserve money that the banks for keeping with the fed so while the banks are getting money they are
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incentivize not do anything with it while the treasury secretary and others are saying this will somehow listen credit for the american people. it didn't. a credit is tighter now and as a result unemployment rate is higher now. i'm not talking about crazy created and people running up but basically the idea of credit for small businesses, for individuals because once those companies can't make payroll they close. they fire people. they have nowhere else to go and also out of this crisis the smaller banks are continuing to fail in sizable numbers with 99 closers as this year's smaller banks will the bigger banks are getting all this capitol. even the banking system there is a wider gap in the smaller banks beetle lot of the smaller loans and the smaller businesses and individuals so there is a total not down effect really of the bottom part of the country and that is why foreclosures are at a record quarter again, not last year come of this year at a record quarter. this year there are more
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defaults, this year people were struggling more. cosco this is after the bailout. >> guest: yes and national unemployment was 5.8% proceeding that period of the crisis last fall and now is almost 10% and that this not include the fact that in those cities and urban areas 139 areas have double-digit unemployment from 15, 15 before the crisis so not only has this crisis hurts me in st. but it has heard of main street. the bailout is hurt main street. >> host: alright, what do we do? what do we do to create financial institutions that are part of the united states of america that don't live behind a wall of greed and selfishness and irresponsibility and the illegal behavior? what do we do to have financial is titian's play a role in providing credit so that the entrepreneurs and business people can create real goods and services and create meaningful jobs? what would you suggest we do?
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>> guest: first of all we have to look at the money given to the system because we didn't put, the government didn't put any strings attached to it. we have to start to attach some strings and say do you know what? he said he were going to loosen credit and you didn't. here is what you need to do. you need to take a portion of their capital and there's all this discussion now and there should be about things having more capital so they can actually control it so the government does have to come in and subsidize it but at the same time some of that should be divided out and more capital should be given to small businesses and more capital should be made available in negotiations to be much easier. wittes tappen alliston only a credit vowel listing but it someone once to renegotiate a home that is about to be foreclosed upon, he can get anyone on the fun. the process is so exhausting and so cumbersome and documents it lost because there's no accountability along the way. these little ones became these many assets so up here you can even find for the actual deed
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was to a property. i think you need to basically take a look at that and make institutions more accountable. there is a good reason to do that now because they are sitting on capital funding. there's more reason not to come in and say they'll let you have yours now here's what you need to do. >> host: use the word accountability. on wall street that is a four-letter word. >> guest: it will never come openly. he is not going to come to washington and be like do you know what we are paying out 23 billion in bonuses, i'm just going to cut it down to a measly 15 billion give the rest of that money to some fund that will help small businesses are some fund that will give credit or advisers or pay for them to help people renegotiate their mortgages. i'm going to do that because i feel that. that will never happen so-- >> host: yeah. >> guest: with particularly because they have had public assistance. it should be easier now to ask
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more of wall street given it has received so much more from the standpoint of the federal government even that was before then. >> host: i think one of things as a senator i hear a lot about people, literally can't understand how they are bailing out these financial institutions and they end up paying 25 for 30% interest rates on their credit cards, which in the old days he to be considered usery business. >> guest: it is these on credit cards. it is these arbitrate these that get slapped on checking accounts and savings accounts. now it is really a byproduct of glass-steagall. >> host: explain for a moment, i'm not sure all the viewers know what scholastical is about. >> guest: in 1929 we had a tremendous stock market crash in the united states followed by the great depression and in 1933 when fdr was the president when
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he can basically in 1932 and 1933 took office. and the first couple of days when he did was to close the banks because it was noted that it was the bank's vault. it was like people spontaneously stopping. credit tightened back then and speculation was rampant even back then. products for being greeted with nothing back then. that was because banks could take the deposits of consumers and the deposits of the population in farha against them. it was called leverage on wall street in order to speculate in trade, and they did. what glass-steagall was about was saying you cannot have a financial institution that both has the right and the actions to population deposits and make loans to the population and have them use that to bed and gamble and speculate. that this make any sense and particularly the federal government cannot possibly be able to back all of that risk. it is all kind of a black box though bless steagall separated banks that and said if you want to be a bank and you want to deal with customers and get
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those deposits, weed blowback unthe fdic was created at the same time and ordered to back the deposits of consumers and individuals in the united states. investing on their own, you can do whatever you want, maybe not totally although that is what has happened but you can speculate, you can trade but we don't have your back. >> host: the taxpayers and not going to bill ubot when you fail. >> guest: right and that was just a logical and the fdic won't be there to ensure your debt which is what they are doing now with goldman sachs and morgan stanley. it won't happen because it makes no sense. was still the 80's in the '90s, people like allen greenspun proceeded to tell the congress why that was just a terrible destructive idea. >> guest: for years before the repeal robert rubin was talking about this notion that we could be competitive destination of our banks were allowed to do whatever it is they do and in
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1993 the glass-steagall act was old and did not work in today's modern world of finance. we are going to bna loss actually. the united states will decline in financial supremacy if we are not going to allow our banks to do what all the other banks are doing. >> host: so the congress repealed glass-steagall. what was the immediate result? >> guest: there were marchers that preceded glass-steagall such as ben travelers. there was an idea where insurance companies could be a part of commercial banks and everything started marching together so there was the first wave of mergers that happened right after class steagall and baggier went down because lobbying was up the year before so that was a small temporary respite on that but then what happened was there was more consolidation for a decade. the banking industry so you went from a situation where the top bank said 20% of the assets and deposits to now the top banks have 50% so you just continue to
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concentrate the industry and concentrated with more risk added to it and now you have these things using deposits again as capital to speculative trade just like they did back in the 20's. >> host: that fixes to the issue of too big to fail. too big to fail means that, if a huge financial institution goes on there is going to take that the economy with it and then plus the justification for having to bail them out. you know, seem to me and i said this on the floor of the senate that if an institution is too big to fail it seems to me that it is too big to exist. alright, but since the bailout we have not seen a break up of these large-- quite the contrary. paul bokor among others has raised that issue. what you think about too big to fail? >> guest: i think we should be going back to a current glass-steagall. we should be separating these banks back out again. we should not have gone from a
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crisis into a situation where there are now fewer banks controlling more assets in the country which goes back to what the fed was doing in terms of lessening those mergers so we have a situation in which we need to separate them out. we need to separate the loans and assets from speculative banking and trading because of we have right now not only with are the big banks bigger. jpmorgan used to be just be jpmorgan chase which had a lot of mergers to begin with but then having achieved the acquisition of bear stearns it adds a risky investment bank for coburn so now this is bigger animal floating with more risk in that risk is what we saw their profits last quarter. again no secret about this. the only reason they made money last quarter is not because consumers are doing better. consumers continue to pose losses because they continue to hurt. where they made money was in trading. i think you have to totally take that risk of the government's responsibility which means to
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have to break up these banks. >> host: if people want to speculate they can speculate that they are on their own. when and if banks want to make loans to people why, real people, we will back them up is what you are saying. >> guest: that makes so much sense because not only piggybacking them up, you know exactly what you are dealing with. i don't think there are a lot of people here in washington is that there and look at what an actual credit derivative prospectus r.a. transaction-- >> host: i concur with that. >> guest: to some extent it is not as complicated as it is made out to be but it is certainly arcane to anybody who was not in the trenches and that is why they get away with creating the securities it creates for good news is that lack of understanding to its benefit. >> host: let me switch gears for a moment. the average american after the
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bailout wanted to understand how the crisis occurred. who was responsible for then how do we hold those people accountable? who was going to jail? who is apologizing? we have not seen in whole lot of that and in fact one of the issues i fought for was real forum. explain to folks what's the investigation was in 1932. >> guest: 1932 pecora was set to undergo an investigation of predominantly the banks by the senate banking committee, to basically look at how, but the practices of the things that were happening at that moment contributed to the crash and contributed to the depression and that, and what he found was this idea speculating on the back of nothing. >> host: jpmorgan and these others. >> guest: jpmorgan and he basically really camera them to explain exactly what their
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practices were common and exactly how the inflated value and exactly what they used, what deposits or money they used in order to do that and it was so clear from that, so clear that this was something that's who was a direct contributor of the crisis. it wasn't that, and foreclosures rawhide then too historically, but that was not the crisis. that was a manifestation of what wall street was doing. the individual home in vermont orn stockton, california or wherever the foreclosure on those were very difficult for the individuals but they are not what brought the system down. what brought the system down was all the speculation that wall street mostly investment banks created on the backs of those loans. cosco the american people really have not net-- thought neck kind of speculation. they have not had the guise to cause the problem in front of the tv cameras answering hard questions, have they? >> guest: that is a good thing
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to do. some of these guys it not been in front of various committees talking about their bonuses and there's a good thing in a bad thing about that. >> the bonus is our egregious particularly now after the crisis with federal funding beneath them but if we just focus on the bonuses we lose sight of the practices that actually contributed to the bonuses so you need to do beaupre the ob-la-di nice if you got these people in front to stay there sorry. >> host: even in addition to that the american people are owed an explanation of what happened and then the understanding that congress is trying to make sure that this doesn't happen again. but what i think you are implying is these guys moving very aggressively to bring us back to exactly where we were before the financial collapse. >> guest: absolutely because one of the things that contributed to them being able to create these assets out of loans with that money was very cheap. money was very cheap under greenspan and as a result you
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have more esoteric loans being given out because banks are getting this money cheapen the need to figure out how they get more out of that so they extracted from sub-prime or extracted by creating an asset or find some way to create money from nothing, and that we have the exact same situation. the banking system is getting 02 one-quarter% loans from the fed so we are in a rhee creation of that scenario just on a grander scale. >> host: let me ask another question, changing here again a little bit. there is growing i think interest in the fed itself, which as you have indicated today is an enormously important institution but a very secretive institution. you can argue that certainly in particular moments ben bernanke the chairman of the fed is more powerful than president obama. >> guest: he controls the ability to create money and that is a very powerful ability.
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>> host: talking little bit about the fed. how does someone like the chairman of the fed get out of this-all of this power? should there be more transparency in the fed? i have to admit i am the author of the senate bill which calls for the ordering of the fed to do all of these things so i'm little prejudice and asking this question. your conservative or progressive's i am, people are shaking their heads that an institution with so much power can operate in so much secrecy. what you think? >> guest: also subsidize the much of the private sector and reside in washington. to a large extent the fed in this particular situation has totally overstepped its mandate. the fed is supposed to on a regular working day control, basically said interest rate for coburn is supposed to raise rates, lower rates depending on whether not money it's easier or harder to flush into the general system to use for businesses are
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what have you. and they do that. it is also supposed to oversee what these commercial banks. it is supposed to make decisions as to whether they are allowed to become bigger. it is supposed to go in and say something. the fact is it doesn't because it has such a tight relationship with wall street with the banking system and it is almost like telling and your brother. >> host: >> guest: there is the 12 federal reserve banks. they are appointed, basically people are appointed and for example the new york fed appoints people from its backdoor which is wall street and therefore you have a board on the fed, which controls to some extent how this money goes back to where they came from. to one extent last year steven friedan who is the new york fed were tim geithner was president was at the same time on the board of directors said goldman sachs. so basically you have got
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purefoy don the place where you can get money from an you go to foyt in the door of the place that gets the benefits. >> host: it is an enormous conflict of interest. >> guest: from day one the fed was a conflict of interest. their relationship is the new york fed is the most powerful but from day one that is accomplished. there should not be members of the board on the board it or in any way related to the banks that received any kind of money from the fed. otherwise holidayed think. let it be a private bank but don't let it have access to the ability to create public money. >> host: how do, in your judgment, these guys with so much power plane literally but trillions of dollars, get away without the kind of public scrutiny-- i make a point when you are on the floor of the senate you are fighting for $20 million there could be a six hour debate.
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meanwhile these guys say no discussion. nobody knows he gets it. what is going on? >> guest: i think to some extent, and you are different but at the time i think there was an idea of the economy is going out of control. a this spiraling downward because something needs to be done in for some reason the fed would know what to do. there were so much debate over the $700 billion there wasn't any questioning at the time over what has been going on on the feds balance sheet and someone said there needs to be answered only the auditing bills are the way to do that and opening what they are doing to the public as a way to do that, there needs to be a required accountability to congress because it is public money. >> berthoud u.n. mcdade democratic society where public's officials are supposed to be held to accountability without any kind of knowledge?
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>> guest: i think what we have seen out of the scenario in particular is that the fed should not be when sort of an isolated private secretive organization. if it is going to be involved in huge raising of public funds in order to subsidize a private industry it needs to publicly disclose what it is doing. it is bizarre that so much conversation is given over $28 million additions to help anything. >> host: it is almost like a shell game. there are great things literally on the floor of the senate that those on the hour after hour after hour and then you have trillions of dollars being left out here with no discussion whatsoever. lescallet one point the amount of money the fed have on offer is a trillion dollars. $6 trillion worth of open possibility. there is an open possibility of $6 trillion worth of money.
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it is staggering, the new debate over the stimulus package or extending unemployment benefits in the numbers are even the same zip code. >> host: where we are rapidly running out of time but this is a fascinating discussion and i'm glad you are a major in mathematics. it sounds like the use the background, very projectively. why don't we conclude our discussion, where deep think the president and the congress should go? what would you like to see them doing? >> guest: first thing i think they should have a real debate of this idea over too big to fail. by simply increasing capital and having these too big to fail banks watch better is not the way to go because you are watching something you don't understand. i think you need to break them up, make them smaller and that will have the added benefit of reducing risk in the system


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